Consider Private Mortgage Insurance
During periods when home values decline, many homes are appraised for much less than they had been appraised in the past. If this is the case when you are considering refinancing, the lower valuation of your home may mean that you now lack sufficient equity to satisfy a 20% down payment on the new mortgage.
To refinance, you will be required to provide a larger cash deposit than you had expected, or you may need to carry PMI, which will ultimately increase your monthly payment. It could mean that, even with a drop in interest rates, your real savings might not amount to much.
Conversely, a refinance that will remove your PMI would save you money and might be worth doing for that reason alone. If your house has 20% or more equity, you will not need to pay PMI unless you have an FHA mortgage loan or you are considered a high-risk borrower. If you currently pay PMI, have at least 20% equity, and your current lender will not remove the PMI, you should refinance.
When To Refinance Your Mortgage
To determine if you should refinance, crunch the numbers yourself. I think its a good time to refinance if its right for your financial situation, says Michael Chabot, SVP of residential lending at Draper & Kramer Mortgage Corp. Look for savings of at least a half percent and make sure you feel extremely confident youll be able to cover your new monthly payment for the life of the loan.
Also, make sure that youre planning to stay in your house long enough to recoup the refinance cost. It might not be worth spending thousands of dollars in closing costs to refinance a house youre planning to sell soon.
Ultimately, the best time to refinance is the time that works best for your personal financial circumstances and goals. If you can get a lower interest rate and afford the closing costs, a refinance could help you save on your monthly payment. But if youre not feeling certain about your finances or your plans for your house in the coming months, it could make sense to wait a bit to explore a refi.
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What Are The Current Rates For Refinancing
Interest rates can change on a daily basis. Chase’s rates are backed by an experienced staff of mortgage professionals and interest rates are updated daily, Monday through Friday, to give you the most current information. Enter your zip code and check out this rate table to get today’s refinance mortgage rates.
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Can You Refinance With The Same Bank
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
While it might be tempting to refinance with the same bank and lower your monthly mortgage payment, you should shop around with other lenders first to make sure youre getting the best deal.
As with most financial products, its always best to practice due diligence and research your options before you refinance with your current mortgage lender or with another lender.
Refinancing To Switch From An Adjustable
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 or from one ARM to another: Namely, if you plan to sell in a few years and youre comfortable with the risk of taking on a higher rate should you end up staying in your current home longer than planned.
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Consolidate Your Second Mortgageonly If Its More Than Half Of Your Income
Some homeowners with second mortgages want to roll it into a refinance of their first mortgage. But not so fast! If the balance on your second mortgage is less than half of your annual income, you would do better to just pay it off with the rest of your debt through your debt snowball.
But if the balance is higher than half of your annual income, you could refinance your second mortgage along with your first one. This will put you in a stronger position to tackle the other debts you might have before you pull your resources together to pay off your mortgages once and for all!
Check Your Credit Score
This time has been tough on everyone, and if youve taken a financial hit, your credit score may have lowered. Check your credit score and evaluate if you should take a little more time before you apply to refinance. Borrowers with good credit will get better rates, but dont get too hung up on trying to have a perfect credit score and miss the window of opportunity.
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Pro: You May Get Lower Closing Costs
Closing fees for refinancing typically cost 2% to 5% of your new loan amount on a $300,000 balance, thats $6,000 to $15,000, since some lenders charge higher fees for home appraisals, title searches, and other services. Therefore, a different lender may offer you lower closing costs than your original lender.
That being said, some lenders will be willing to give a current and good client a discount on closing costs to keep them as a client, Sheinin says. Depending on the lender, they could offer a reduction of a few hundred dollars to about $1,000 in lower closing fees.
One caveat: I always tell people to be cautious when a lender offers a credit to cover some or all of the closing costs, McRae says. That almost always means a lower interest rate was available.
Refinance A Mortgage: What Does It Mean
A mortgage refinance is when you take your existing mortgage and you replace it with a brand new mortgage. It involves breaking your existing mortgage, paying it out in full with a completely new mortgage. The new mortgage usually differs in some beneficial way. For example, it could be for a bigger amount, a different mortgage rate, a different term length, a different amortization period, or be a different mortgage type.
On the topic of increasing the mortgage amount, you dont have to have necessarily pay down a large sum of your existing mortgage to significantly more money in a new mortgage. It depends on your propertys value at the time of the mortgage refinance. You can unlock additional equity from your home simply from your property appreciating in value since you first bought it. Assuming you have enough income to qualify, youre able to unlock up to 80 per cent of your propertys value through a mortgage refinance.
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Reduce Your Loan Term And Become Debt
If you have a 30-year loan, mortgage refinancing can help you reduce your loans term and get down to that 15-year sweet spot. The sooner you pay off your home, the sooner youre keeping every bit of income you earn to yourself. That means youre saving more, investing more, and have more to give away. Plus, if you get a lower interest rate, then you can pay more toward your principal each month, accelerating your progress!
What Does Refinancing In 2021 Look Like For You
We know thats a loaded question, considering 2020, but consider your financial situation for the foreseeable future. Is your job outlook stable? Refinances can sometimes take months to process, especially now with an influx of refis and the logistics of COVID.
If youre considering refinancing your home, dont wait to get in touch with us and let us help you explore your options. Its definitely not too late to take advantage of the low rates available right now get started on your Refinance with Newrez today!
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Is It Cheaper To Refinance With Your Current Lender
The upfront cost of a refinance can be substantial, so savvy homeowners should shop around to see if their current lender offers the best deal. Obviously, you wont know until you get several estimates .
You have likely built a relationship with your lender, so theyll know your track record on payments. This may give you leverage to get discounts or special rates, especially if you have excellent credit and a record of on-time payments.
Youre Almost Done Paying Off Your Mortgage
In the early years of your mortgage term, your payments primarily go toward paying off interest. In the later years, you begin to pay off more principal than interest, meaning you start to build up equity the amount of your home that you actually own.
Once you refinance, its like youre starting over. Say youve been paying off your old mortgage for 10 years, and you have 20 years to go. If you refinance into a new 30-year mortgage, youre now starting at 30 years again.
Before you decide to refinance, calculate your break-even point and how the overall costs including total interest of your current mortgage and your new loan would compare. Take note that refinancing usually makes more sense earlier into your mortgage term.
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How To Find The Best Mortgage Refinance Rates
If you still maintain a , it will play a role in the interest rates youre offered. The higher the score, usually, the lower the rate. Shop around with different lenders to see who can offer you the best deal. Remember, the whole point of refinancing is to get a better rate and/or a shorter loan term than youve currently got!
But if youre debt-free and dont use credit cards, well, that probably means you dont have a credit score. And thats a good thing! Around here, we call a credit score an I love debt score. But since most mortgage lenders use a credit score as their primary way of setting interest rates for applicants, make sure to look for a company like Churchill Mortgage. Churchill provides manual underwriting for customers without a credit score, as well as the loan approval process for people with one.
If youre ready to get the process started or just curious whether refinancing your mortgage could save you big bucks, then get connected with our trusted mortgage provider, Churchill Mortgage. Theyre committed to keeping your budget top of mind and finding the best option for your home.
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Can You Refinance With The Same Lender
The short answer is, yes, you can refinance with the same bank or lender.
If youre satisfied with your current lender, that could be enough motivation to refinance with the same lender. But while the benefits of good customer service are significant, youll still want to ensure your existing lender can meet your refinancing goals before you sign on the dotted line.
If you do work with your current lender, be sure you fully understand the terms of the new loan. Just because youve worked with it previously doesnt mean you shouldnt scrutinize everything. If youre struggling to decide whether the new loan terms make sense in the long run, a mortgage refinance calculator can help you get a better understanding.
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You Want To Convert An Arm To A Fixed
An adjustable rate mortgage generally offers borrowers a lower interest rate at the beginning of the loan. But after a fixed period , the interest rate has the potential to fluctuate and not always in the borrowers favor. For this reason, some homeowners will opt to refinance their ARM into a fixed-rate mortgage, which eliminates this fluctuation in interest rate.
Its also possible to refinance a fixed-rate mortgage into an ARM. This involves some risk, but it could be a smart option if interest rates are falling, or if you plan to sell your home before the initial period of fixed interest ends.
Try To Negotiate With Your Existing Lender
In addition to finding a better deal elsewhere, shopping around gives you leverage for negotiating your refinance deal with your existing loan provider.
Its very possible, if you get a better offer, that your existing lender will try to match or beat it to keep your business, Anastasio says.
Existing lenders might match a lower interest rate you found elsewhere, or alter the loan terms or lender fees, Anastasio explains. Be aware that some lenders may charge points in exchange for a lower rate. If thats the case, refinancing there might not be worth the cost.
To find out whats right for you, get a loan estimate from multiple mortgage companies. This lays out all the costs of refinancing, including interest rate, monthly payment, and closing costs, with application, origination, and underwriting fees. This way, its easy to compare whos offering what.
Find the best rate and terms, and see if your current lender will match it, Pierce says. But be prepared to go somewhere else if cost is your No. 1 priority.
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To Change To A Different Loan Type
Homeowners can also refinance from an adjustable-rate mortgage to a fixed-rate loan or vice versa.
What you should know:
Conversely, shifting from a fixed-rate loan to an ARM can be a good financial strategy if interest rates are falling and you dont plan to stay in your home for long.
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Whats The Difference Between Refinancing Vs Renewing Your Mortgage
Renewing your mortgage means staying with your current lender for another term. Youll have an opportunity to renegotiate your interest rate and term, and you wont need to re-apply.
When you refinance, you are paying out your existing mortgage in order to negotiate a new mortgage loan agreement. This is usually because you want to access the equity in your home or lower other borrowing costs. There may be prepayment charges depending on when you choose to refinance.
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Alternatives To Refinancing For Smaller Projects
If youre only looking to borrow a small amount, such as to pay for a small renovation project or to pay off a small credit card bill, then a home equity line of credit would be a great alternative to a refinance. A HELOC is just like a refinance in that you can only borrow up to 80% of the value of your home, but it differs in that you can borrow and repay freely without having to pay fees each time you borrow. This is great for homeowners that want a line of credit that is easily assessable and easily payable. However,HELOC ratesare higher than mortgage refinance rates. HELOC rates are also usually variable rates, which means that your interest rate will not be fixed, unlike a mortgage refinance that can have a fixed rate.
Another alternative to refinancing would be home equity loans. Home equity loans aresecond mortgagesthat allow you to borrow money on top of your existing primary mortgage. Some lenders, particularlyprivate mortgage lenders, allow you to borrow a larger amount with a home equity loan, such as up to 90% or 95% of your homes value. However, second mortgages and home equity loans havehigher interest rates.
What Are Todays Refinance Rates
Mortgage and refinance rates continue to hover near record lows, which means there are ample savings opportunities for homeowners.
If youre still paying rates from a year or two ago, your refinance savings could be huge.
A refinance may even be worth it if you only drop your rate 0.5% to 0.75% it all depends on your current loan and your financial goals.
Check todays rates to find the best refinance deal for you.
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Will You Stay In Your Home Long Enough To Benefit From A Refi
Using our example , youd pay $23,000 in interest over the next three years with your current 30-year loan at a 4% interest rate.
On the flip side, the 15-year refi at 3% interest would only cost you about $17,000 in interest the first three years. That means, after three years, your refi will have made up for its own closing costs .
After that, youll enjoy thousands of dollars of savings nearly every year until you pay off the mortgage or sell your home! But if you relocate in just 12 years after refinancing, you wouldnt earn back that $6,000 and the refi wouldnt have been worth it.
Whewthats a lot to throw at you! And we know that even when using a mortgage calculator, the math can be pretty complicated. So ask a home loan specialist you can trust for helplike our friends at Churchill Mortgage.
Know Your Breakeven Point
An important calculation in the decision to refinance is the breakeven point: the point at which the costs of refinancing have been covered by your monthly savings. After that point, your monthly savings are completely yours. For example, if your refinance costs you $2,000 and you are saving $100 per month over your previous loan, it will take 20 months to recoup your costs. If you intend to move or sell your home within two years, then a refinance under this scenario may not make sense.
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