Refinancing

We make understanding refinancing mortgage loans wayyy easier.

About all things refinancing mortgage loans.

• What is refinancing?

  Refinancing is when you replace an existing loan with a new loan. 

  Mortgage refinancing allows a homeowner to borrow funds at a more favorable interest rate, repay the funds over a different length of time or withdraw from or add to your home equity.

• How does refinancing a mortgage work?

  When you refinance, you get a new mortgage to pay off your existing mortgage.

  Since your home is an investment, refinancing can help you leverage your investment by getting cash for your home or lowering your payment and shortening your loan term.

  So how does it work?

  1. After you complete your application, your loan will be submitted to underwriting and an appraisal will be ordered to assess your home's value.

  2. The underwriter will review your file and may ask for additional documentation.

  3. Once your loan is clear to close, you will sign your closing documents and your loan will fund after the right of rescission, which is a three day waiting period required on refinance loans.

  4. After this, the title company will pay off your current mortgage. Note: If you are doing a cashout loan, they will also pay off any additional debts included in closing or wire funds to you directly.

• Why refinance a mortgage?

  Depending on your financial circumstances or current interest rates, there are several ways refinancing could be beneficial to you.

  Here are the common reasons to refinance: 

  • Reduce monthly payment
  • Reduce total interest paid
  • Shorten the length of the loan
  • Change rate type (for example, from adjustable rate to fixed rate)
  • Draw cash out to pay for other expenses or debts
  • Cancel mortgage insurance premiums

  As you weigh your options, be sure to consider the closing costs that will come with refinancing. For example, these could include the origination fee, appraisal fee, title insurance fee and credit report fee. You can typically expect to pay 2% to 6% of the loan amount in closing costs.

• Refinancing to get a lower interest rate.

  When market interest rates drop, refinancing to get a lower interest rate can lower your monthly payment, lower your total interest payments or both.

• Refinancing to access your home's equity.

  Home owners can take cash out, whether it be to do home improvements or consolidate debt. You can access your home equity through a cash-out refinance if you have at least 20% equity remaining after the transaction.

  Cash-out refi rates can be a bit higher than rate-and-term refinance rates, but there still may be no cheaper way to borrow money.

• Refinancing to get a shorter loan term

  If you refinance from a 30-year to a 15-year mortgage, your monthly payment will often increase. But not only is the interest rate on 15-year mortgages lower; shaving years off your mortgage will mean paying less interest over time.

  The interest savings from a shorter loan term can be especially beneficial if you’re not taking the mortgage interest deduction on your tax return.

• Refinancing to get rid off an FHA loan.

  FHA loans have mortgage insurance premiums (MIPs) that cost borrowers $800 to $1,050 per year for every $100,000 borrowed.

  Unless you put down more than 10%, you must pay these premiums for the life of the loan—which means the only way to get rid of them is to get a new loan that isn’t backed by the FHA.

• Refinancing to get rid of PMI.

  Eliminating private mortgage insurance on a conventional loan is not, by itself, a reason to refinance.

  Unlike FHA MIPs, you don’t have to get rid of your loan to get rid of PMI. You can request cancellation once you have enough equity—typically 20%.

• Refinancing to switch from an adjustable-rate to a fixed-rate loan (or vice versa).

  Some borrowers refinance because they have an adjustable-rate mortgage and they want to lock in a fixed rate. But there are also situations when it makes sense to go from a fixed-rate to an adjustable-rate mortgage.

  For example, if you plan to sell in a few years and you’re comfortable with the risk of taking on a higher rate should you end up staying in your current home longer than planned.

• What is my break-even point?

  You’ll also need to know the loan’s closing costs to calculate the break-even point where your savings from a lower interest rate exceed your closing costs.

  You can calculate this point by dividing your closing costs by the monthly savings from your new payment.

  A break-even period of 25 months is fine, and 50 might be, too, but 75 months is too long. There’s a good chance you will refinance again or sell your home in the next 6.25 years.

  

• What types of refinance mortgage loans are there?

  Homeowners can choose from a few different refinance products depending on their financial goals:

  • rate-and-term refinance
  • cash-out refinance
  • cash-in refinance
  • streamline refinance
    

  As long as you meet the lender’s qualification requirements, almost any loan can be refinanced.