refinance

Refinance

A mortgage is generally the largest debt most homeowners have to manage.  It’s a good idea to give your personal real estate finance portfolio a check-up at least once a year.

Since there are many reasons a homeowner may choose to refinance, we’ll take a look at the four most common.

1.  Mortgage Rates Drop:

Typically, the most common reason that homeowners refinance their mortgage is to secure a lower interest rate. Interest rate and loan amount determines the total cost that a borrower will pay. The lower the interest rate, the less the overall cost will be. Interest is calculated on a daily basis and usually paid back to the lender on a monthly basis.

2.  Lower Payments:

Lowering a mortgage payment can be achieved by lowering the mortgage rate, lengthening the loan term, combining two or more loans or removing mortgage insurance.

3.  New Mortgage Program:

Refinancing an Adjustable Rate Mortgage (ARM) to a new Fixed Rate Mortgage (FRM), combining a first and second mortgage or paying off a balloon loan are three possible reasons to explore a refinance.

4.  Debt Consolidation or Getting Cash out:

If there is sufficient equity, sometimes paying off consumer debt by combining all debts into one lower monthly mortgage payment can significantly reduce the short-term deficits in a budget.  However, it’s important to keep in mind the total cost of that debt by adding it into a 30 year mortgage payment.  There are also cash-out refinance options where you can pull out some money while also improving your rate and/or term of your mortgage loan.

 

The appraisal is key to structuring the refinance properly.  Sometimes the house appraises for more than anticipated which allows borrowers to also reduce or even eliminate the need for monthly mortgage insurance.

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Frequently Asked Refinance Questions:

Q:  Do I have to refinance with my current mortgage company?

No, you may choose any company to refinance your mortgage since the new loan will replace the existing mortgage.

Q:  Is it easier to refinance with my current mortgage company?

It is possible your current mortgage company may require less documentation, but this could add additional cost or a higher interest rate. Do your homework and shop around to make sure you’re getting the best deal.

Q:  Will I automatically qualify if I’ve never made any late payments?

No, you will have to qualify for your new refinance. However, certain programs will allow for reduced documentation like a FHA to FHA Streamline Refinance.

Equity Requirements/Down Payment - generally 5% but there is a 3% down Conventional HomeReady option available in some instances
Maximum Loan Amount - $424,100
Mortgage Insurance - no mortgage insurance if the equityt is 20% or more; if less than 20% equity, mortgage insurance will be included in the monthly payment
Borrower Benefits - Fixed rates or adjustable rates; great program to build equity in your home; monthly mortgage insurance drops off when equity in home reaches 20% of home's value
Equity Requirements/Down Payment - minimum of 3.5%
Maximum Loan Amount - $275,665
Mortgage Insurance - FHA loans have both an up-front mortgage insurance fee (currently 1.75% that can be rolled into the loan) and also a monthly mortgage insurance as part of your monthly payment (currently .85% annually based on 3.5% down).  There are FHA Streamline options available with lower fees for loans that qualify.
Borrower Benefits - Fixed rates; Higher debt-to-income ratios allowed than most programs (means more buying power for you); Flexible on credit; low down payment
The VA IRRRL can be used to refinance an existing VA loan to lower the interest rate.
Equity Requirements/Down Payment - NO down payment required
Maximum Loan Amount - $424,100; Loans greater than $424,100 are allowed if borrower meets down payment criteria
VA Qualifications - Must have at least 180 days active duty OR military reserves must have served for at least 6 years to qualify
Mortgage Insurance - No monthly mortgage insurance.  There is an up-front VA funding fee of .5% that is rolled into your loan amount.  Veterans with military-related disability are exempt from the VA funding fee.
Borrower Benefits - Fixed rates; No down payment; flexible on credit; no monthly mortgage insurance
Equity Requirements/Down Payment - NO down payment required
Maximum Loan Amount - No maximum loan amount for USDA loans
USDA RD Qualifications - check with your mortgage banker for details on this program; the house must be located in an RD-eligible area; there are also income guidelines that must be met to qualify
Mortgage Insurance - low monthly mortgage insurance.  There is an up-front RD funding fee that is rolled into your loan amount
Borrower Benefits - Fixed rates; No down payment; low monthly mortgage insurance/funding fee
Equity Requirements/Down Payment - minimum of 2.25% required
Maximum Loan Amount - $275,665
Section 184 Qualifications - Borrower must be a member of a federally-recognized tribe and provide proof od their tribal membership (typically the tribal ID card)
Mortgage Insurance - low monthly mortgage insurance.  There is an up-front Section 184 funding fee that is rolled into your loan amount
Borrower Benefits - Fixed rates; low down payment; low up-front and monthly mortgage insurance. 
Equity Requirements/Down Payment - Typically a 20%  is required; however some loans allow 15% down payment/equity
Maximum Loan Amount - Jumbo loans are loan amounts that exceed $424,100.  Jumbo loans have flexible maximum values up to $3,000,000
Jumbo Qualifications - generally requires a minimum credit score of 680
Mortgage Insurance - no monthly mortgage insurance in most cases since 20% equity in the home
Borrower Benefits - fixed rates; term options; keep your savings/investments