Home Refinancing Guide
what you need to know
You may be refinancing your existing home into a lower, better term mortgage loan ... or maybe for some other reason. Refinancing your home requires the same steps and approval as purchasing a home.
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Reasons Why Home Owners Refinance
To Find a Better Rate
The key reason why home owners refinance their mortgage is to lower their current rate. Current refinancing rates have dropped substantially. Homeowners that refinance at lower rates can cut their monthly payments.
Compare your mortgage rate with current refinancing rates:
Refinancing your home can cost you
Refinancing a home comes with cost — mainly in lender origination fees and closing costs. Most lenders tack these additional costs on the new mortgage loan that you will be assuming.
For example: lets say that amount you still own on your current mortgage loan is $100,000.
So when the lender refinances your loan, they will underwrite a new mortgage loan to payoff your current mortgage loan balance. But the lender may charge an orgination fee of 1%; plus you may incur points and closing cost of a approximately 4%. So your total costs to refinance may be $5,000.
Lenders will tack the $5,000 to the original payoff amount to give you a mortgage loan of $105,000. This practice is usually referred to as no-cost refinancing. In other words, there is no out-of-pocket costs to you to refinance.
You can of course pay those fees out-of-pocket. But most homeowners choose to tack the fees onto their refinancing amount.
Your new rate should be 1-2 points lower than your current rate in order to benefit:
meaning that you need to lower your rate by 1-2 points in order to recover the costs of refinancing.
If you new rate is less than 1-2 points from your current rate, you will pay more in refinancing if you just stick with your current mortgage plan.
There are other reasons why you may refinance instead of just getting a lower rate.
These other reasons include:
- Get
Into a Stable Mortgage Product
homeowners with payment-risk mortgages such as adjustables, interest-only, minimum payment plans, and other high-risk mortgages will refinance into more stable, fixed-rate mortgage loan.
These homeowners may have used these higher risk mortgages to get into their first home. Now that thier financial situation has improved, and that the rates on fixed-mortgages have declined, now is the time to get into a mortgage loan product that carries little risk.
- To Arrange
Better Payoff Terms:
homeowners may want to shorten or lengthen their payoff terms depending on their financial situation.
For example: homeowners in 30-yr mortgage plans may want to refinance in a 15-yr or 10-yr mortgage plan in order to pay off their mortgage faster. Likewise, homeowners who want to lower their current mortgage payment may refinance their current mortgage loan out to another 30-yr term.
- To Get Some Cash Out:
many homeowners will refinance their home mortgage to take extra cash out for home improvements, debt payoff, college education, auto buying, and other.
They will refinance at a higher mortgage value to repay their existing mortgage loan and take cash out for need expenditures.
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another option for cash-out: view our home equity center
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another option for cash-out: view our home equity center
Refinance Cash-Out Options
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