If you’re a homeowner with a mortgage, there is a likely chance that you will refinance your home at least once throughout the life of your loan. There are several reasons to refinance and it often provides many benefits to you, the homeowner. But, understanding the basics of refinancing can be difficult to break down, especially if you’ve never refinanced before.
That’s why it’s so important to do your research before making your decision. There are also a few different factors to consider in your refinance and not knowing the difference could cost you a lot of money and/or wasted time.
Whether you’ve recently thought about refinancing or you’re ready to refinance but you have questions, you’re in the right place. Here, we’ll discuss all the basics you need to know. Keep reading to learn more.
The Basics of Refinancing Your Home
Refinancing can be just as demanding and confusing as purchasing or selling a home. It can also be a real breeze if you have an amazing loan officer. He or she can help you make sense of the paperwork and associated fees and walk you through the refinance process with ease.
Types of Loans for Refinancing
Before you can refinance, you should know what type of loan you currently have and what type of loan you intend to obtain. It’s also important to know the differences between each type of loan. Let’s take a look at your options.
VA Loans
VA loans allow for 100% financing of the purchase of a home without any money down. The VA also has one of the most simple refinance options available, the Interest Rate Reduction Refinance Loan (IRRRL – pronounced “earl), which as the name suggests, is a streamlined loan process with the sole purpose of reducing your interest rate and requiring very little documentation. We love the simplicity and benefit this loan provides our veteran clients and friends.
FHA Loans
FHA loans require an upfront and annual Mortage Insurance Premium, also known as MIP. Because FHA allows a higher debt to income ratio and a lower downpayment, the insurance is there to cover the additional risk to the lender while allowing a lower barrier to entry for first time home buyers. If you’ve had your loan for a few years and believe the equity is there, you may consider refinancing to a Fixed Rate Mortgage with no MIP.
Conventional Fixed Rate Mortgages
Fixed rate mortgages are just as they sound. The rate remains fixed throughout the life of the loan. The most common reasons for refinancing a fixed rate mortgage includes accessing cash and lowering the interest rate, or to eliminate Private Mortgage Insurance (PMI) which is required for loans with less than 80% Loan to Value (LTV).
Adjustable Rate Mortgages (ARMs)
An adjustable rate mortgage, alternatively, only remains fixed for a short period of time, typically two to five years. After that, the rate becomes adjustable according to the market and the terms of the loan. Many people refinance ARMs in order to avoid their loan adjusting to a significantly higher rate, resulting in monthly payment they can’t afford.
The Mortgage Refinance Process
Once you determine what type of loan you currently have, you may begin preparing for your refinance. Here’s a checklist of things you’ll need to know to get started.
Your Credit Score
Knowing your credit score up front will give you a leg up as you begin shopping for loan officers and prime rates. If you’re shopping with multiple brokers or lenders you should be sure to have them pull your credit around the same time. Multiple inquiries spread out over too long a period of time can reflect negatively on your credit report and lower your score.
Home Value
What is your home worth? Are you planning on taking cash out? Even if you’re just refinancing to a different loan type or a lower interest rate, knowing the value of your home is essential. Zillow is a fine resource to get a rough estimate but has its flaws (for example, it doesn’t know the condition of your home, whether or not it has an amazing view, etc.). To obtain a more accurate home valuation, contact a local real estate agent and ask them for a Current Market Analyses (CMA), which is much more reliable.
Knowing exactly what you hope to achieve with the refinance of your home will make a big difference in the proceedings of the loan. Your lender will appreciate your honesty and do their best with that information to help you obtain the right loan.
Rate Shopping
The best way to prepare for a refinance is to use a mortgage loan calculator to determine what your new payment with be using current rates. Keep in mind that most rates advertised online are not as cut and dry as they seem. Always ask a lender for a full closing cost worksheet that reflects your credit score, debt-to-income ratio and loan-to-value when evaluating different rates.
A typical closing cost worksheet includes but lender and origination fees, processing fees, appraisal fees, and title and insurance costs. You will also be able to see if they are quoting discount points, which is a fee that you pay in order to lower your interest rate.
Risks of Refinancing
Always ask your lender how long it will take you to break even on the cost of your new loan. Do you only plan on keeping the home another year? It may not be worth the closing costs if you are only hoping to lower your monthly payment as it could take some time for the savings to outweigh the expenses.
Also, be sure to check with your current lender to make sure there are no fees or fines associated with refinancing out of your mortgage, such as pre=payment penalties.
The Major Benefits of a Refinance
The benefits of refinancing a home don’t stop at changing loan types or lowering interest rates. Here are some common reasons and benefits of refinancing for homeowners.
Lower Monthly Payments
Perhaps one of the greatest benefits of refinancing a mortgage is the potential to lower your monthly payment. Alternatively, you could keep the same or minimally higher payments and significantly shorten your loan term, which allows you to pay off your mortgage faster.
Access to Cash
Need cash to pay for your daughter’s wedding or your son’s last year in college? Maybe you have some home improvements that are out of your current budget. Refinancing gives you the option of taking equity out of your home to make larger purchases or investments.
Consolidate Debt
You may want to use that cash to pay off debt. Just be careful to weigh the costs of your refinance over the life of the loan compared to your other debt to be sure you’re really saving money.
Reduce Interest
And, of course, reducing your interest rate is a great reason to refinance. Not only can it have an impact on your monthly payment, but you’ll pay less over the life of your loan.
Final Thoughts
The home basics of refinancing don’t have to be so confusing. Set your goals, get your credit score in line, and find a loan officer you can trust to have a seamless experience. And, keep these tips in mind as you journey through the process in order to have something to reference when you’re unsure about anything.
If you have questions or would like to speak with a loan officer, don’t hesitate to contact us! Our goal is to help you make smarter financial decisions.
Thanks I am a mother and very busy! This helped me alot!
Thanks!
Great! Thank you so much. Keep up the good work.
Bookmarked!
You definitely come with outstanding posts.
The Basics and Benefits of Refinancing – thanks for this.
Aw, this has been an extremely nice post.
This is awesome.
Good article. I’m facing some of these issues as well..
Very good information.
Pretty! This has been a really wonderful post. Many thanks for providing this info.
Excellent post! We will be linking to this particularly great content on our site. Keep up the good writing.
You made some really good points there. I looked on the net for additional information about the issue and found most people will go along with your views on this site.
Good post. I learn something totally new and challenging on sites I Stumble Upon on a daily basis.
I really thank you for your information. This article has really peaked my interest.
I find good information from your content.
Way cool! Some extremely valid points! I appreciate you writing this article plus the rest of the website is extremely good.
You’re so awesome! I don’t think I’ve read through something like this before.
That is a good tip particularly to those fresh to Refinancing.
I couldn’t refrain from commenting. Very well written!
This is such a great post, and was thinking much the same myself. Another great update.
Hello, Neat post.
Everything is very open with a precise description of the issues. It was truly informative. Your site is very helpful. Many thanks for sharing!
Excellent web site you’ve got here.. It’s hard to find quality writing like yours nowadays.
Spot on with this write-up, thanks for the information.
Greetings! Very helpful advice within this article! It is the little changes that produce the greatest changes. Thanks for sharing!
Hi, I do think this is a great site.
Good post. I learn something totally new.
I was able to find good advice from your blog posts.
Hello there, You’ve done a great job. I will certainly digg it and personally suggest to my friends. I’m confident they will be benefited from this web site.
Great information. Lucky me I discovered your site
There’s definately a great deal to learn about this subject. I love all the points you made.
Greetings! Very helpful advice within this post!
I seriously love your blog. Great colors & theme.
Way cool! Some extremely valid points! I appreciate you writing this post and also the rest of the website is extremely good.
I could not resist commenting. Very well written!
Hi! This is a great website about Refinancing.
It’s hard to find well-informed people about this topic, however, you seem like you know what you’re talking about! Thanks
This is awesome! Refinancing explained!
Thanks for sharing this useful info about Refinancing.
Pretty! This was an incredibly wonderful post.
Thank you for supplying these details.
Thank you very much for your reliable and amazing guide about Refinancing.
Great help with refinancing.
Thank you for the auspicious writeup.
I’ve been planning to refinance and I’m so glad I’ve read about these.
Good to know a lot about refinancing.
Awesome.
Cool stuff! I like it for refinancing.
You seriously have excellent article material. Love it.
Thank you for this.
Great stuff. Thank you.
Hello There. This is an extremely well-written article. Thanks for the post.
Hi! Great ideas!!
Great article here.
Very helpful article for me.
Good article. I am experiencing some of these issues as well..
Thanks for any other informative blog.
This is super helpful!! You broke down refinancing into simple and understandable terms.
Keep this going please, great job!
Wonderful beat! I wish to apprentice even as you amend your site!
I have been browsing online for more than 3 hours today, yet I never found any interesting article like yours. It was pretty worth enough for me.
Good to get a refi nowadays.
Another thing I have really noticed is the fact that for many people, a bad credit score is the result of circumstances past their control. One example is they may have already been saddled with illness so they really have substantial bills going to collections. It would be due to a job loss and the inability to work. Sometimes separation and divorce can send the financial circumstances in the wrong direction. Thanks for sharing your thinking on this web site.
You certainly come with amazing article content. Thanks a lot for sharing your website page.
I was recommended this blog by my cousin. You are incredible! Thanks!
I believe the content material here is rattling wonderful , appreciate it for your hard work. You should keep it up forever! Best of luck.
I can definitely see your expertise with refinancing.
every stuff here about refinancing is quality based data.
Good day! I just wish to give a huge thumbs up for the good info about refinancing you could have right here on this post. I shall be coming back to your blog for more soon.
I like the valuable information you provide in your articles. I am quite sure I’ll learn a lot of new stuff right here! Best of luck for the next!
My brother recommended I might like this web site. He was entirely right. This post truly made my day. You cann’t imagine just how much time I had spent for this info! Thanks!
I loved this article about refi. It was practical. Keep on posting!
Keep up the great work! You know, lots of people are looking around for this info about refinancing, you could help them greatly. Have a great day. Bye
I will recommend this web site!
I appreciate it cause I found just what I was looking for. God Bless you man. Have a great day.
Coming yet again to read through more news.
Hello! It’s actually fastidious for me to pay a quick visit to this site!
Great site to review. Is worth the time.
Hello! This is good info about Refinancing.
Undeniably believe that which you stated. Thanks
Hi from Brazil. I really enjoy reading! So much information.
Hi there! Thanks for the information.
Great info.
Do you have any video of that?
Thank you for every other informative blog.
After looking at a handful of the blog articles on your site, I truly appreciate your technique of blogging about Refinancing.
Keep up the nice job.
Thanks
I’ve read several good stuff here.
I like to read your articles about refinancing.
Great post.
This I believed is extremely enlightening.
Refinancing well explained.
Howdy! This post couldn’t be written any better! Reading through this post reminds me of my old roommate! He always kept chatting about refinancing. I will forward this post to him. Fairly certain he will have a good read. Many thanks for sharing!
Hi to everyone. The contents of this website are in fact amazing for people’s knowledge. Keep up the good work fellows.
This is great
I love your writing very so much!
Very fantastic information.
It’s an amazing post about refinancing.
A stunning article there.
You have made some good points there. I looked on the net to learn more about refi and found most people will go along with your views.
Hey very nice blog!
I love all of the points you made.
You made some nice points there. I did a search about refinancing and found the majority of folks will agree with your blog.
Sweet blog! Thanks
Good day! This post couldn’t be written any better! good read. Thank you for sharing!
Wow, that’s what I was seeking for! thanks, admin of this website.
You’ve made some really good points there about refinancing.
I want to say excellent blog! Cheers!
bookmarked!!, I like your web site!
This is the right website for anybody who really wants to understand this topic about refinancing.
There is certainly a lot to find out about refi. I like all of the points you have made.
Thanks a lot!
Helpful article about refi.
It’s a wonderful article.
It’s good to understand this when planning to get a refi.
Great topic. Thanks for the magnificent info.
I just like the valuable info you provide in your articles.
Thanks
This is my first time pay a visit at here and i am really happy to read all at alone place.
Hello there! I just wish to give you a big thumbs up for the great info you have here on this post.
This is very fascinating.
Thank you for the magnificent information.
keep up the excellent job.
Thanks a lot!
I know I am getting knowledge all the time by reading such pleasant posts.
I am really thankful you shared this great post
This is really interesting
I thought this post was great. 😉 Cheers!
Spot on with this write-up, thanks for the info!
Great site
Good post.
I am genuinely thankful for this website. Thanks for sharing.
Nice weblog right here!
Wonderful beat
Pretty! This was a really wonderful article. Many thanks for providing these details.
This is really interesting
It’s a really really good writing about Refinancing.
You made some clear points there.
Good post. Appreciate it!
Тhanks for finalⅼy talking аbout The Basics and Benefits οf Refinancing
It’s really a great and useful piece of info. Thank you for sharing.
Good stuff about refi!
I am quite sure I’ll learn much new stuff right here! Good luck with the next!
Very nice blog post. I definitely appreciate this site. Continue the good work!
Yes! Finally someone writes about the benefits of refinancing.
An impressive share!
Valuable information. I bookmarked it.
I really like your blog about the benefits of refinancing.
Thank you for this write up about refinancing.
Terrific work! Thank you =)