How can I lower my monthly mortgage payments? How can I shorten the loan term? Is there any way I can have more cash for a project?
For these reasons and more, homeowners turn to refinancing. What is refinance? Refinance is when a homeowner essentially trades in their current mortgage for a new one, usually with a new principal and interest.
Types of Mortgage Refinance:
- Cash-out Refinance. It allows the borrower to take out a new home loan on their own property for a larger sum than what is owed on their current mortgage loan. The difference in loan amounts between the current and new loan is given to the homeowner as cash. This doesn’t increase the homeowners monthly payments, the larger loan serves as a replacement for the current mortgage. The only difference is the monthly payment could be different as the homeowner signed a new agreement.
- Cash-in Refinance. This is the direct opposite of Cash-out Refinance. This requires the homeowner to put a large sum into the current mortgage rather than taking it out. This causes an increase in home equity, which can also help the homeowner pay lower monthly payments or lower interest rates. This is usually best for homeowners who are stuck with underwater mortgages*.
- Rate and Term Refinance. It allows homeowners to change the interest rates and loan terms on their current mortgage. The loan amount is the same but with a potentially lower interest rate and/or loan term, can help homeowners with lower monthly payments.
- FHA Streamline Refinance. This is an option for homeowners with FHA loans that are looking to lower their monthly payments and to avoid a repeat of the appraisal process.
- VA Streamline Refinance. This is an option solely to military veterans and active service members with VA loans. It helps the homeowners lower their monthly payments and interest rates. It also helps homeowners to change their adjustable-rate mortgage to a fixed-rate mortgage. To approve for it, homeowners need to provide a proof of residence to their lender in order to qualify.
- USDA Streamline Refinance. This option allows homeowners with USDA loans and with little equity in their homes to potentially lower their interest rates and/or loan term, all while avoiding additional appraisals on their properties.
- Reverse Mortgage. This option is for homeowners over the age of 62 with equity in their homes. It allows homeowners to convert their home equity into cash income with no monthly payments. Most reverse mortgages are federally insured.
- No-Closing-Cost Refinance. This option is so homeowners don’t have to pay closing costs upfront. It is instead covered with a higher interest rate on a loan or it is added onto the loan’s principal. This type of refinancing is best for homeowners who plan to live in their homes for a few years as well as those who need funds for other things rather than for closing costs.
- Short Refinance. This option is best for homeowners who have defaulted on their loan payments and are at risk of foreclosure. The lender agrees to refinance a homeowner’s property for the current market value, which allows the homeowner to pay lower monthly payments. The difference between the current and new mortgage is paid off by the lender.
How Much Does It Cost To Refinance?
To know the cost of refinancing, it first mostly depends on the type of loan you first have, and then the method of refinancing you want to follow. For most refinancing options, you have to pay around 2-3% of your current loan balance. Depending on the type of refinancing you want, there may/may not be any fees associated with it.
How Do I Know Which Option Is Best For Me?
It’s difficult to know which refinancing option works best for you. The following factors can help you decide:
- Current type of mortgage
- Type of borrower you are
- What is the reason for refinancing
- How much equity do you have in your home
- Credit Score
- Debt-To-Income Ratio*
- Loan-To-Value Ratio*
- Overall financial stability
- Contact us for a free consultation, and together, we can help to see if you qualify for refinancing and decide which option is best for you.
* DEFINITIONS OF TERMS USED:
Underwater Mortgage: A mortgage loan that is more than the current value of the property.
Debt-To-Income Ratio: Is the percentage of your gross monthly income, that’s used for your monthly debt payments. This information is used by lenders to dictate your borrowing risk.
Loan-To-Value Ratio: This is the ratio that compares the loan amount you’re borrowing against the property’s appraised value.