What Might My Monthly Mortgage Payment Include
Whats included in your monthly mortgage payment will differ depending on whether you have an escrow account for your taxes and insurance. Most lenders require this, particularly if you make a down payment of less than 20%.
At a minimum, every mortgage payment will include principal the amount that goes toward paying off the balance of the loan and interest.
Assuming you have an escrow account, your mortgage payment will also include your property taxes and homeowners insurance, each divided over a 12-month period. If you have mortgage insurance, its handled the same way.
Although it may or may not be included in your escrow account, if youll be living in a homeowners association your monthly or annual dues are included in your qualification as if they were part of your mortgage payment.
Collectively, you can remember the parts of your mortgage payment with the acronym PITIA: Principal, Interest, Taxes, Home Insurance and Home Association fees.
Are You Doing A Hard Credit Check On Me Today
Its always good to know when the lender is going to perform a “hard” credit check, called a “hard inquiry.” That type of payment history inquiry shows up on your credit report. Lenders need to do this to give you a firm interest rate quote.
When youre shopping more than one lender, youll want these hard credit pulls to occur within a short period of time say within just a week or so to minimize the impact on your credit score.
» MORE: Get your free credit score today
What Is Your Credit Score
Just as it was when you initially purchased your home, your credit score will be an important factor when you refinance. A higher credit score will help to ensure you will be able to get a better interest rate. Since one of the main purposes of refinancing is to get a better rate, it is important to make sure you have a good credit history. If your credit score is not where you would like it say if its below 700 you may want to work on building up your credit first before refinancing.
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Why Do You Want To Refinance
Determine what your goals are and why you want to refinance. According to Forbes, while interest rates are at historic lows, the savings a refinance offers should drive a homeowners decision.
Lower your mortgage payment by securing a lower interest rate which could help save you money on your mortgage payment.*
Consolidate your debt by saying goodbye to higher-interest rate debt with a cash-out refinance.
Cash-out on equity with a cash-out refinance which can provide extra funds needed for home improvements, vacations, etc.
Keep payments from rising by locking in an interest rate, especially if you plan on staying in your home long term.
Questions To Ask Your Lender Before You Refinance
Over the life of your mortgage, you may want to refinance to meet a variety of personal and financial goals. Furthermore, its important to ask these basic questions before making the decision to refinance your mortgage. Make sure to ask these questions below when discussing refinancing options with your lender.
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How Much Have Interest Rates Dropped And How Much Do You Owe
This is key. If the interest rate on your new mortgage isnt at least 1% lower than your current rate, refinancing is probably not worth your time. That doesnt mean a 1% drop in rates always justifies a mortgage refinance. A lot depends on how much you owe on your mortgage. A 1% drop in your interest rate means a lot more when you have a $1 million mortgage than when you have a $100k balance.
Sometimes, it makes sense to refinance even if your interest rate stays the same or even rises. For instance, you may want to reduce the risk of interest rate hikes and change your variable-rate mortgage to a fixed-rate mortgage. Or maybe you need cash and you decide to refinance your current mortgage for one with a larger balance and pocket the difference.
SuperMoney makes it easy to compare the rates of the top lenders in the refinance business.
What Closing Costs Should I Budget For
The closing costs youll want to budget for when buying a home include land transfer tax, real estate lawyer fees, home inspection, appraisal and Provincial Sales Tax on mortgage default insurance premiums .
If you cant afford to pay the closing costs out of pocket, you can always sign up for a cashback mortgage. With a cashback mortgage, youll receive cashback from the lender, which you can use towards closing costs.
Sometimes, banks will offer cashback mortgages as application incentives. For example, until May 21, 2022, Tangerine Mortgage is offering a cash bonus of up to $5,000** to new mortgage clients who also hold a Tangerine chequing account. Terms and conditions apply. Learn more.
Youll also need to budget for ongoing expenses beyond your closing coststhings like utilities, home insurance, repairs and maintenance.
Something else not to overlook as a new homeowner is life insurance. Although youre not required to have life insurance coverage as a new homeowner, in most cases its in your best interest to take out a policy. This helps ensure your family is protected should anything happen to you.
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Does My Refinance Require Another Appraisal
I recently talked about how refinances dont always require an appraisal. And this is becoming more and more common as technology improves.
Simply put, companies like Fannie Mae and Freddie Mac are leveraging data to determine if and when an appraisal is actually necessary.
If their automated underwriting system determines that a manual appraisal isnt necessary, they may issue an appraisal waiver.
This can save you money and shorten the time it takes to get a mortgage.
But it only works on certain types of refinances, namely rate and term refis.
The thinking is a borrower obtaining a lower rate and corresponding monthly payment is less risky, especially if they have property value data in their database that says the value inputted is on point.
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In general, homeowners, should consider refinancing their mortgage when doing so would lower their monthly outlays, shorten the life of their loan or allow them to pull out cash or equity from their abodes.
While interest rates are at historic lows, the savings a refinance offers should drive homeowners decision, Anderson says.
Nobody ever goes, Oh, I wish I had a 3% rate or I wish I had a 4% rate, Anderson says. They go, Oh, I wish my payment was lower. So it really comes down to factoring in how much lower my payments can go.
For example, slashing the interest rate from 3.8% to 3.5% on a $400,000, 30-year fixed-rate mortgage, initiated 5 years ago, could result in $250 saved every month, if the refinanced loan also lasts three decades. Yet, keeping the term the same, effectively restarting the clock, would mean more paid in interest overall.
The flip side of that is going to be someone who is comfortable with their payment and who wants to accelerate paying off their loan, in which case they can shorten their term, Anderson says.
But sometimes this might also produce higher monthly payments.
The good news is that home equity has grown even through the current economic downturn as home prices have remained stable. The bad news is that some lenders have tightened their requirements on cash-out refinances, which typically cost more.
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What Documentation Do Lenders Need From Homeowners To Do A Refinance In Light Of The Pandemic
The typical documents lenders ask for think employment records and third-party property appraisals havent changed because of the pandemic. The novelty, though, is lenders closer scrutiny of income, as millions of Americans have lost their jobs either permanently or temporarily due to the coronavirus and, four months in, companies continue to announce layoffs.
Instead of verifying employment within 30 days to 10 days , some lenders are requiring verification of employment even up to three days prior to the closing, Anderson said. If there is any type of reduced hours or a layoff or a furlough, the lender obviously wants to catch that just to ensure that the borrower can continue to make payments.
Mortgage Questions To Ask Your Lender
Asking the right questions could save you money on a home. Mortgages 101
Buying a house is exciting but its also a big decision. Whether youre looking for a new home or refinancing your current one, choosing the right mortgage is one of the most important aspects of the process, so it helps to be prepared. To ensure you get all the information you need as youre making decisions when buying or refinancing a home, you need to know the right questions to ask.
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Is This A Standard Or Collateral Mortgage
Are you planning to shop around for your mortgage when it comes up for renewal? Thats a wise decision. You could save yourself tens of thousands of dollars by doing that. A standard charge mortgage makes it easy for you to shop around. Usually, theres no cost for you to switch lenders at the end of your mortgage term.
A collateral charge mortgage is ideal if you plan to set up a home equity line of credit . However, having a collateral charge mortgage also makes it more difficult and costly to transfer your mortgage to another lender.
Its not always obvious which type of mortgage youre signing up for, so be sure to ask your broker whether youre getting a collateral or a conventional mortgage upfront. Most lenders in Canada offer both standard and collateral charge mortgages some, like Tangerine Mortgage, offer only collateral charge mortgages.
Will I Pay Any Prepayment Penalties On This Loan
Some lenders will charge a prepayment penalty if you pay off your loan before the end of your term. Its likely your loan agreement spells out if and when the penalty applies. If your lender charges a prepayment penalty, its usually only within the first three to five years of the loan.
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Questions To Ask Yourself Before Refinancing Your Mortgage
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Many homeowners are talking about refinancing their mortgages at the moment. With interest rates at a historical low, and many feeling the financial pinch, thats understandable. But, before you jump into refinancing your mortgage, its important to know what it involves and what the potential consequences are. With that in mind, here are 7 questions to ask before you make your choice.
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Will I Pay Private Mortgage Insurance
Whether you pay private mortgage insurance varies from one lender to the next. PMI is used to off-set the lenders risk and is typically charged if you put less than 20% down when purchasing your home.
PMI is typically paid monthly as part of the monthly mortgage payment. But it can also be paid as a one-time upfront premium at the time of closing. Its difficult to pinpoint how much PMI will cost, but you can estimate about .5% to 1% of your loan amount annually. And, PMI doesn’t last forever. When your loan balance is 78% of the original cost of your home, your lender must drop PMI.
Not sure youll pay PMI? Visit Credible to get in touch with experienced loan officers and get their mortgage questions answered.
How Many Lenders Have I Contacted
When it comes to refinancing, different lenders have different deals to offer. So, it definitely pays to shop around rather than accept the first offer you’re given. Reach out to at least three or four lenders, and when assessing your offers, be sure to look at rates as well as closing costs.
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Is The New Mortgage Interest Rate Lower Than My Current Rate
One of the major reasons homeowners choose to refinance is to take advantage of lower interest rates. Keep track of mortgage interest rates so you will get a better idea if it is a good time to refinance. Shop around and compare different lenders instead of accepting the first loan option that becomes available to you.
It is critical to take your time during this step and compare rates and options against a variety of local and online sources. Spending more time here could pay off in spades with a rate that could shave thousands off your overall repayment.
Do You Have Any Plans To Relocate
This is an important question to ask yourself, especially if your refinancing goal is to have smaller monthly payments on your mortgage. At the same time, the closing costs will take several years to recuperate, especially if youve negotiated including them in your loan with your lender. Savvy homeowners reap the benefits of refinancing in the long run, so if you plan to sell your home and move out in the coming years, refinancing might not be the best option for you.
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How Much Down Payment Will I Need
A 20% down payment is every lenders ideal, but its not always required. Qualified buyers can find mortgages with as little as 3% down, or even no down payment. Again, there are considerations for every down payment option. The best lenders will take the time to walk you through the choices.
» MORE: Calculate your down payment
How Do I Qualify For One
When it comes to qualifying you for a loan, mortgage lenders will look at several factors, including income, property, assets and credit .
Your credit report is pulled to get a look at your credit score as well as your existing debts. Lenders look at the lowest median credit score of all borrowers on the loan for the purposes of qualification.
- For FHA, that score is 580 if youre trying to purchase, lower your rate or change your term.
- The qualification baseline for most conventional loans is 620.
- Lenders set their own policies for the VA at Rocket Mortgage you have to have at least a 620 score.
- USDA loans from Rocket Mortgage require a 640 score.
Beyond credit, income is also very important because its compared to your existing debts to get something called your debt-to-income ratio . In order to qualify for the most loan options, you should keep your DTI at no more than 45%, house payment included.
Finally, the lender will look at your property and assets.
In the property piece, an appraiser has to make sure the home is move-in ready, safe to live in, as well as assign a value to the property.
The lender will also look at your assets to make sure you have money for a down payment.
Depending on the investor in your mortgage and the loan purpose , you may be required to have reserves savings for a certain number of months of mortgage payments, should you experience a loss of income.
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Why Should I Refinance My Mortgage
The biggest reason to refinance your mortgage is that it can save you money â either in the short term or the long term. Here are some of the most common reasons why people refinance:
Which Is Better?
âMost importantly, people should carefully consider their long-term objectives,â says Jerry Koors, president of Merchants Mortgage in Indianapolis. âFor some clients, it is to get the lowest payment possible, for others it may be debt consolidation, and others it could be to save interest and pay their home off sooner. Once that objective is set, then consulting with a mortgage professional on the best ways to achieve those objectives is the next step.â
What Types Of Closing Costs Can I Expect
You must pay closing costs to your lender when you finalize your refinance, just like when you got your original loan. The specific closing costs youll pay vary depending on where you live and the lender you choose.
The average refinance has closing costs that are equal to about 2 5% of the total value of the loan. Ask your lender what closing costs youll likely be responsible for. You should also ask your lender if you have the option to roll your closing costs into your loans principal.
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