To Switch From An Arm To A Fixed
For some homeowners, this can be an excellent move, particularly if you intend to stay in the home for years to come. But homeowners who are simply afraid of the bad reputation of an adjustable-rate mortgage should carefully look at their terms before making a move to refinance.
If you have an ARM, make sure you know the index to which it is tied how often the loan adjusts and what the caps are on loan adjustments for the first cap, annual cap, and lifetime cap. It may be that a fixed-rate loan is better for you, but do the math before committing to spending money on a refinance.
When Is It Advantageous To Refinance
If you can reduce your mortgage interest rate by ½ percent to ¾ percent and if you expect to be in the house more than three years, then it makes sense to look into refinancing, says Greg McBride, senior vice president and chief financial analyst for Bankrate.com.
There is a break-even period and it will vary depending on the loan. Typically, after three years you start to reap the benefits of refinancing. Ask yourself, Are you going to stay there or own the home long enough to take advantage of the refinancing? says Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association.
Another key factor is the cost of refinancing. There are a number of entities that have their hand in your pocket, says McBride. There can be lender costs such as origination fees, application fees and also third-party fees such as appraisal fees, title work fees, local and state government taxes, and recording fees. See what else besides the rate is added to the mix, McBride says. Most often, borrowers roll these costs into the loan amount.
Dont Open More Loans Too Soon
The more applications you complete, the more hard inquiries youll see on your credit report. And its not restricted to refinanced home loans. If you apply for a credit card, a car loan or even a personal loan in the weeks leading up to refinancing, your credit score will likely go down.
If you want to complete a few applications with many different lenders, make sure you do within a few weeks of your first completed application. That way the hard inquiry only counts as one inquiry, not one inquiry for every application you complete.
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What Is An Origination Charge
The origination charge is the amount charged for services performed on the initial loan application and loan processing. This includes all charges that lenders and brokers involved in the transaction will receive for originating the loan. It includes any fees for application, processing, underwriting services, and payments from the lender for origination. Learn more about closing costs.
Wait The Minimum Amount Of Time To Refinance Your Home
Depending on the type of mortgage you want and the lender you go through, you might have to wait a certain amount of time after you close on your original mortgage to refinance.
Here are some typical wait times you might experience:
- Cash-out refinance: If youre planning on a cash-out refinance, you typically have to wait six months after your original mortgage closes.
- FHA loan: To refinance an FHA loan with an FHA Streamline Refinance loan, you have to wait 210 days.
- Loan modification: If you modified your original loan to make your loan payments more affordable, you might have to wait as long as 24 months to refinance.
Keep in mind:
Find Out: How Soon Can You Refinance: Typical Waiting Periods By Home Loan
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Can You Refinance With Your Current Mortgage Lender Pros And Cons
See Mortgage Rate Quotes for Your Home
If youre looking to lower your monthly mortgage payment, refinancing with your current lender could save you the hassle of switching financial institutions, filling out extra paperwork and learning a new payment system.
But before you sign on the dotted line, its smart to shop with multiple mortgage companies to get the best refinance rate. After all, hefty savings may make it worth it to change lenders.
Is Now A Good Time To Refinance
For many homeowners, now is a great time to refinance. Todays mortgage rates are still at historic lows, creating opportunities for millions of homeowners to save on their monthly payments.
Consider that dropping your rate by just 1.0% puts about 10% of your mortgage payment back into your pocket each month.
That means for every $1,000 you pay to your lender today, you could reduce your payment by $100.
Thats $12,000 saved over the next 10 years simply by doing a refinance.
And low mortgage rates arent the only thing U.S. homeowners have going for them.
Dropping your mortgage rate by just 1% could save you $12,000 over the next 10 years.
Home values are at an all-time high, which means home equity has increased for many borrowers. Thats good news if you want to tap your equity using a cash-out refinance.
Its also good news for homeowners who made a small down payment a few years ago.
If your homes value has increased while youve been paying down your loan balance, you might have enough equity to cancel mortgage insurance and save a few hundred dollars each month.
Of course, refinancing your current mortgage isnt a free ride. There are closing costs to pay, and you need to consider the long-term cost of starting a brand new mortgage.
Thats why its important to check your own rates and see how much you could save.
Refinance rates vary by borrower and by company, so get quotes from a few different lenders to see how a refinance could benefit you.
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To Move Into A Longer
While refinancing into a mortgage with a lower interest rate can save you money each month, be sure to look at the overall cost of the loan. For instance, if you have 10 years left to pay on your current loan and you then stretch out the payments into a new 30-year loan, you will end up paying more in interest overall to borrow the money and be stuck with 20 extra years of mortgage payments.
Keep Your Credit Utilization Low
Lets say you have a credit card with a $10,000 limit and you put $5,000 worth of expenses on it every month. In that case, you have a utilization ratio of 50%. If you use 100% of your available credit, you might hear someone say that youve maxed out your credit.
Lenders dont like to work with borrowers who have very high credit utilization ratios. Using too much of your available credit tells lenders that you might not have anything in savings. It can also mean that youre more likely to fall behind on your bills or miss a payment.
Keep your utilization ratio low month after month to raise your credit score. Your utilization ratio makes up about 30% of your FICO® Score.
Your score will generally increase if you keep your utilization ratio at or below 30%. For the biggest bump in your credit score, keep your utilization ratio below 10%. Carrying more cash with you, paying down your charges immediately and budgeting your money are all easy ways to lower your utilization.
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What Are The Alternatives To Refinancing Your Home
Rather than refinancing their home in whole, some homeowners who have built up significant equity & currently enjoy a low-rate loan can use a home equity loan or line of credit to tap their equity without resetting the rate on the remainder of their existing debt. A home equity loan is a second mortgage which operates similarly to the first mortgage, but usually charges a slightly higher rate. A home equity line of credit operates more like a credit card, as a revolving form of debt which can be drawn upon & paid off as convenient.
Options For Refinancing A Mortgage With Bad Credit
Do you have a bad credit score? If so, you might think that a refinance is completely out of your reach. Hold up it might not be. There are a few methods and special circumstances to help you possibly refinance with a lower score.
Well take a look at a few ways you can refinance your mortgage even with a bad credit score. Well give you a quick refresher on what a refinance is and offer a few simple tips you can use to raise your score before you refinance.
Take the first step toward the right mortgage.
Apply online for expert recommendations with real interest rates and payments.
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To Reduce Your Monthly Payments
In general, reducing your monthly payments by lowering your interest rate makes financial sense. But don’t ignore the costs associated with refinancing. In addition to the closing costs and fees, which can range from 2% to 3% of your home loan, you will be making more mortgage payments if you extend your loan terms.
If, for example, you have been making payments for seven years on a 30-year mortgage and refinance into a new 30-year loan, remember you will be making seven extra years of loan payments. The refinance may still be worthwhile, but you should roll those costs into your calculations before making a final decision.
Comparing the amortization schedule of your current mortgage to the amortization schedule of the new mortgage will reveal the effect a refinance will have on your net worth.
Comparison Shop For Best Rate And Fees
There are various lenders to approach. For example, you can check with your current lender to see what it can offer you. In addition, you can try major banks such as Bank of America, Chase and Wells Fargo, as well as credit unions and other non-bank lenders such as Rocket Mortgage and LoanDepot. Non-bank lenders issue more than half of all loan originations.
Check the mortgage rates from at least three lenders. Get rates in real time, Lee says. Get it in writing.
In addition to comparing the rates, refinancing will include closing costs, and they are typically lower than when you purchase a home. Look at the fees the lender is charging, says McBride. Comparison shop.
To compare loan offers you have to calculate the Annual Percentage Rate for each loan you are considering.
The APR is the cost of borrowing money, including other charges, according to the Consumer Financial Protection Bureau. It reflects the mortgage rate as well as the fees you pay to obtain the loan.
A higher APR means you will pay more over the life of the loan. Use a loan comparison calculator, such as one from Bankrate, to calculate the APR, for example, for three different loan offers.
Estimates for closing costs vary depending on the state and municipality of the home. Lender estimates vary from 2 percent to 6 percent of the loan amount. Yet because the cost of closing a loan can include state and local taxes, ask lenders what is included in the term closing costs.
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What Do Lenders Look For In Refinance Applications
Mortgages are made based on personal, not business, incomebut for self-employed people, the two are closely related. You are considered self-employed by lenders if you have an ownership interest of 25% or more in a business. In general, mortgage lenders weigh the following factors, whether you’re self-employed or not:
Refinance To Lower Your Mortgage Rate
To determine if you can save money with a lower mortgage rate, use our calculator to compare the monthly interest savings against the cost to refinance. As most mortgage brokers and lenders will cover your legal costs, the main cost you need to worry about is your break of mortgage penalty, or prepayment penalty. This penalty is charged by your lender for breaking your mortgage contract early and is based on your original contract date, current mortgage balance, mortgage rate, and other factors.
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Comparison Shop For The Best Mortgage Refinance Rates
A Consumer Financial Protection Bureau survey discovered that nearly half of all homeowners requested a mortgage quote from just one lender.
Consumers who received rate quotes from multiple mortgage lenders cut their interest rate by as much as 50 basis points .
Thats more than $14,000 in mortgage interest savings on a $300,000 loan over 10 years.
Your current lender or local bank may not offer your best refinance option. Compare rates and fees from three to five mortgage lenders before you decide on one.
How Borrowing On Home Equity Works
You may be able to borrow money secured against your home equity. Typically, interest rates on loans secured against home equity can be much lower than other types of loans.
Not all financial institutions offer home equity financing options. Ask your financial institution which financing options they offer.
You must go through an approval process before you can borrow against your home equity. If youre approved, your lender may deposit the full amount you borrow in your bank account at once.
You can borrow up to 80% of the appraised value of your home.
From that amount, you must deduct the following:
- the balance on your mortgage
- your total HELOC amount, if you have one
- any other loans secured against your home
Your lender may agree to refinance your home with the following options:
- a second mortgage
- a loan or line of credit secured with your home
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A Notary Can Review Documents For Accuracy
Notaries are well-versed in reading legal documents and they will be able to review the legalities of the mortgage to watch for mistakes, inaccuracies, or inconsistencies. They will also be able to monitor the mortgage registration process and make sure that the borrower receives their funding at the right time.
If you are interested in learning more reasons to use a notary when refinancing your mortgage or, if you want to find out about any of our other real estate and conveyancing services, please contact Sidhu & Associates at 604-859-4825 or fill out a contact form on our website.
Staying On Top Of Trends
It is difficult to predict whether mortgage rates will stay relatively the same for the time being or if they will begin to climb up sooner than anticipated. Different sources have their own predictions some experts, for instance, predict that rates will stay flat and low at near 3% through the end of 2021. Trends show that over the last year, 30- year mortgage rates have gone up slightly and down, but for the most part, have hovered around 3% or less. The 30-year mortgage rates for Filo Mortgage have ranged from 2.375% to 2.875% with no points over the last twelve months.
While mortgage rates have gone up slightly, they are still historically low, and now can be a great time to refinance into a lower payment. Waiting to see if they drop again can be a gamble it may take a while before they do drop again if they do at all.
Keep an eye out for inflation data. If inflation starts to increase, then it is likely mortgage rates will follow. In addition, mortgage rates tend to move in the opposite direction of the economy. So as the economy improves, mortgage rates tend to increase. However, if the economy were to worsen then mortgage rates could trend down further.
You can follow mortgage rates by paying close attention to the 10-year treasury rate. The 10-year Treasury note is closely tied to and correlates with the 30-year mortgage rate.
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Extend Or Reduce The Amortization Period
Amortization, or the length of time it will take you to pay off your mortgage, is another thing homeowners in the GTA should consider. A familys financial situation may have changed since getting the first mortgage and it might just make sense to refinance with a shorter or longer amortization period.
If you find your finances have improved, it might be a good idea to refinance a mortgage with a shorter amortization period. Increasing mortgage payments can lower the amortization period by five or more years and save tens of thousands in interest payments.
Its also quite possible that the family budget has been stretched thin and you want to free up some capital. In this case, refinancing a mortgage with a longer amortization period might be the best thing to do. It will take longer to pay off the mortgage and lead to more interest payments, but it could free up $100.00, $200.00, $300.00, or more a month.
Why Refinance Your Mortgage
Below are some of the most common benefits homeowners realize when they refinance their mortgage in Canada:
- Lower interest rates: One of the primary reasons why people choose to refinance is due to dipping interest rates. Even though you will have to pay some fees and penalties for breaking your current mortgage contract, the long-term savings youll realize with a lower rate may very well outweigh the initial cost.
- Lock in an interest rate: Amidst a backdrop of rising rates, many Canadians are choosing to refinance their mortgage in order to lock in a longer term rate in anticipation of higher future rates.
- Debt consolidation: If you have several different loans with varying payments and interest rates, you may be struggling to keep up. Refinancing a mortgage gives you the ability to consolidate your big payments and debts into one long-term loan. This allows you to have a single interest rate, which is much more manageable than having separate terms for auto loans, credit card debts and other lines of credit.
- Home equity access: As you pay off your mortgage, you build equity in your home. You can calculate your equity simply by subtracting the amount you have left to pay off your mortgage from the total market price of your home. By refinancing a mortgage, you can tap into this equity, using it to renovate or upgrade, make investments or pay for education for you or your children.
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