Switch From An Adjustable
With your ARM having adjustable interest rates, you might start off with the first few years at a fixed rate. But after that, the rate can adjust based on a lot of factors, like the mortgage market, and the rate that banks themselves use to lend each other money.
Bottom line is, ARMs transfer the risk of rising interest rates to youthe homeowner.
So, in the long run, an ARM can cost you an arm and a leg! Thats when refinancing into a fixed-rate mortgage could be a good financial move. Its worth it to avoid the risk of your payments going up when the rate adjusts.
How To Calculate Your Refinance Savings
Okay, put on your math hat! Lets say you bought a $300,000 house with a 30-year mortgage at a fixed interest rate of 4% and had a 20% down payment .
After around 10 years of paying about $1,150 per month on your mortgage, your loan balance is now at $200,000. You want to save money, so you consider a refinance.
Using our mortgage calculator, you enter your remaining loan balance of $200,000. To test the refi option, you shorten the mortgage term from your remaining 20 years to 15 years and drop your interest rate down a percentagefrom 4% to 3%.
Youll notice that the shorter 15-year term will make your new monthly payment go up from $1,150 to about $1,400 per monthbut dont worry. Youve probably earned some raises over those 10 years to be able to afford that $250 increase each month. Plus, youll pay off your home five years sooner and save $53,000 in interest!
Just make sure your monthly mortgage is never more than 25% of your monthly take-home pay.
The Conservative Model: 25% Of After
On the flip side, debt-hating Dave Ramsey wants your housing payment to be no more than 25% of your take-home income.
Your mortgage payment should not be more than 25% of your take-home pay and you should get a 15-year or less, fixed-rate mortgage Now, you can probably qualify for a much larger loan than what 25% of your take-home pay would give you. But its really not wise to spend more on a house because then you will be what I call house poor. Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldnt be saving and paying cash for furniture, cars, and education.
Notice that Ramsey says 25% of your take-home income while lenders are saying 35% of your pretax income. Thats a huge difference! Ramsey also recommends 15-year mortgages in a world where most buyers take 30-year mortgages. This is what Id call conservative.
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Finding The Right Lender
One place to start is with , a site that allows you to get quotes from three lenders in only three minutes. Theres no obligation, but if you see a rate you like for your mortgage or refinancing your mortgage, you can progress to the next step of the application process. Everything is handled through the website, including uploading documents. If you want to speak to a loan officer, you can, of course, but it isnt necessary.
As you shop for a lender, remember that every dollar counts. Youre committing to a monthly mortgage payment based on the rate you choose at the very start. Even small savings on your interest rate will add up over the years youre in your house.
is another great place to get started since they allow you to shop and compare multiple rates and quotes with minimal information, all in one place. Youll input the amount of the loan, your down payment, state, mortgage product type, and your credit score to get mortgage quotes from multiple lenders at once.
In the market for a house sometime soon? Use our resources to target your searchand know well in advance what you can afford:
Shop Around To Get The Lowest Refinance Rates
If you decide to refinance, be sure to maximize your savings by comparison shopping.
Interest rates can vary by half a percent or more between lenders which equates to a major difference in your monthly payments and longterm cost.
Todays mortgage rates are so low that refinancing might make sense for you now, even if it did not a year ago.
Check with several competing lenders to make sure youre getting the best deal.
Refinance Or Pay Extra: An Overview
Knowing when to refinance or when to keep your existing loan and make additional payments depends on your financial goals and specific needs.
Everybodys situation is a little different, but heres a quick way to assess your own scenario:
Its usually better to refinance when:
- You expect to stay in the home a long time. The upfront costs of refinancing pay off when you stay in the home long enough to benefit from the new loans savings
- Youre not far into the existing loan. If youve only had your existing mortgage a few years, youre more likely to save money in the long run by refinancing
- You also want to tap home equity. With a cash-out refinance you can save on interest and get cash back to renovate your home, consolidate credit card debt, or use for any other purpose
- You can qualify for a low rate. Unless youre doing a Streamline Refinance, your mortgage lender will check your credit score and debt-to-income ratio to determine your rate. Borrowers with great credit, low debt levels, and plenty of home equity have access to some of the best rates and biggest refinance savings
If one or more of these conditions is true for you, youre probably a good candidate to refinance and pay less interest at todays historically low rates.
Its usually better to make extra payments when:
If one or more of these conditions describes your situation, making extra loan payments might offer a better and more cost-effective path forward.
For example, a new mortgage could:
What Churchill Mortgage Offers
- They originate conventional, FHA, VA and USDA mortgages
- You can also get a no credit score home loan
- Unclear what individual loan programs are offered
- They dont advertise their mortgage rates or disclose lender fees on their website
One negative to Churchill is the lack of information regarding loan products.
While their website is filled with lots of helpful mortgage tips and how-to articles, theyre a little light on company details.
After some digging, I was able to see that they offer conventional, FHA, VA and USDA mortgages.
Thats good news because it means all the major bases are covered with regard to loan type.
But in terms of individual loan programs, such as 30-year fixed, 15-year fixed, 5/1 ARM, etc., theres no information.
I assume they offer all the most popular loan programs, but cant say so definitively. Its a bit bizarre that this information isnt readily available.
Additionally, they make no mention of mortgage rates or lender fees, so were also in the dark on these key factors as well.
Without knowing any of this stuff, its very difficult to determine how competitive Churchill is versus other mortgage lenders.
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Is It Better To Have A Mortgage Or Not
By opting to go with a mortgage, you can give yourself more financial flexibility. Paying a mortgage can also provide tax benefits for homeowners who itemize deductions versus taking the standard deduction. And while you shouldn’t opt for a mortgage just to get a deduction, a reduced tax obligation never hurts.
A Historic Opportunity To Potentially Save Thousands On Your Mortgage
Chances are, interest rates won’t stay put at multi-decade lows for much longer. That’s why taking action today is crucial, whether you’re wanting to refinance and cut your mortgage payment or you’re ready to pull the trigger on a new home purchase.
The Ascent’s in-house mortgages expert recommends this company to find a low rate – and in fact he used them himself to refi . and see your rate. While it doesn’t influence our opinions of products, we do receive compensation from partners whose offers appear here. We’re on your side, always. See The Ascent’s full advertiser disclosure here.
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Some Basic Rules Of Thumb To Live By
While there is certainly this debate about paying off the mortgage vs. investing I do think there are some rules of thumb that I try to live by.
First, pay off your debt before you retire. Even though I dont pay a lot of extra money on our mortgage I do believe in having ALL of your debt paid off before you retire. It will just provide your peace of mind as you move into your retirement years.
Second, save at least 15% of your income no matter what. If there is a choice between saving for retirement, saving for a house, and/or paying off the mortgage I will always err on the side of saving for retirement. Your house is an illiquid asset and unless you sell it it wont help you much in retirement if you dont have any savings. So if I have to choose I would dedicate myself to saving more for retirement, even if that means I would rent rather than own a house.
Third, dont buy more house than you can afford. I think a lot of us certainly want the dream home/McMansion that we see on TV but getting into our dream home can be a stretch for a lot of people. I would personally advise people to buy a much more modest house than try to stretch the budget to get into a bigger and better house. Buying a modest house, paying it off quickly, and then using that house to get into your dream home would probably be a better strategy.
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.
About the author
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They May Recommend A 15
Speaking of 15-year fixed mortgages, theres a good chance it might be recommended to you if you apply with Churchill.
As noted, they are big proponents of Dave Ramsey and being debt-free, and paying off a mortgage in half the time is a big step in achieving that goal.
Of course, a 15-year fixed will cost you about 1.5X your typical monthly mortgage payment, so its not for everyone.
In fact, many wont qualify for a 15-year fixed due to affordability constraints and DTI maximums.
If Dave were calling the shots, hed probably say dont buy the house unless you can afford the 15-year fixed.
Its unclear what Churchills loan officers would say, but Im sure they offer other loan products, such as the 30-year fixed.
How Does Paying Off Your Mortgage Affect Your Taxes
When you pay off your mortgage, you stop paying interest and lose the ability to write off that expense. This makes your taxes go up. For example, if you had been writing off $3,000 of loan interest a year and you pay 25 percent federal tax, your tax liability would go up by $750 if you pay off your loan.
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Churchill Mortgages No Score Loan
- They offer mortgages without a credit score
- Because Dave Ramsey doesnt have a credit score and his listeners may not either
- Alternative credit such as a cell phone bill or utility bill is used instead
- This establishes a history of payment behavior to determine creditworthiness
However, one of their more unique mortgage offerings is their no score loan, which allows you to get a mortgage without a credit score.
Why would they offer this you ask? Well, once again Dave Ramsey comes into the picture. Apparently, he doesnt have a credit score, since he eschews all credit.
And theres a good chance many of his loyal listeners are in the same boat, yet dont have the money to pay all-cash for a home.
Thats where their no credit score home loans come in they rely on alternative credit, such as a cell phone bill, utility bill, insurance premium, school tuition, child care, or rent payments.
This allows an underwriter to establish a history of on-time payments using that alternative credit.
In terms of approval, they say a 15-year fixed with at least 20% down provides the best chance of getting to the finish line.
Can You Get A Home Mortgage Loan Without A Credit Score
The answer is, yes! If you apply for a mortgage without a credit score, youll need to go through a process called manual underwriting. Manual underwriting simply means youll be asked to provide additional paperworklike paystubs and bank statementsfor the underwriter to review. This is so they can evaluate your ability to repay a loan. Your loan process may take a little longer, but buying a home without the strain of extra debt is worth it! Keep in mind, not having a credit score is different than having a low credit score. A low credit score means you have debt, but having no credit score means you dont like debt!
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Applying For A Loan With Churchill Mortgage
- At the moment you fill out a short form on their website
- Then you are connected with a loan officer from one of their branches
- The rollout of Churchill Next may change that process to a fully digital one
- There is also a smartphone app that allows you to upload documents and check loan status
Like many other lenders, you start by filling out a short form on their website. This include providing basic contact info, at which point youll be matched up with a Home Loan Specialist.
They refer to this as the Churchill Checkup, a 10-minute call to help align your mortgage with your personal goals.
While the company has branches nationwide, there are out-of-state branches that serve different states. So its possible your loan representative could be located halfway across the country.
In any case, once paired up, they will ask you what your housing goals are and then present the best loan options available to you.
This process will likely change thanks to its new initiative known as Churchill Next, which is their digital transformation powered by tech company Infosys.
The partnership will enable borrowers to interact with the company in any way they wish, without compromising the values and trust Churchill is built on.
In other words, in the future you might be able to apply for a home loan via the app or website without speaking to a human, if thats your desire.
Should I Pay Off Mortgage Or Refinance
keeping the mortgage. Less debt increases your monthly cash flow. If you financed or refinanced in the past five years or so, you have a low mortgage rate. Investing the money rather than paying off your mortgage may give you a higher return, especially in tax-advantaged or tax-free accounts.
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Is It Better To Get A 30
Refinancing from a 30-year, fixed-rate mortgage into a 15-year fixed-rate note can help you pay down your mortgage faster and save lots of money on interest, especially if rates have fallen since you bought your home. Shorter mortgages also tend to have lower interest rates, resulting in even more savings.
Maximize Your Down Payment
Although Ramsey is an advocate of buying a home with 100 percent down, not everyone can wait to gather the total amount they need before purchasing a home. The key is to put down a minimum of 10 percent or as much as you can to reduce the amount youll need to finance.
Put down 20 percent and save even more money. When you take out a conventional loan and opt for a down payment of at least 20 percent, you can avoid having to pay PMI. PMI usually costs between 0.5 and 1 percent of the mortgage loan amount each year which equals money you could be adding to your mortgage payment.
Cynthia Measom contributed to the reporting for this article.
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Consider The Nonmonetary Factors
Once you know the monetary cost and benefits of refinancing, consider the nonmonetary factors, and ask yourself if its really worth it. I told you that refinancing our mortgage from a 30 year to a 15 year mortgage was only projected to increase our net worth by less than $2,000 in the long run. But refinancing also took time from both me and my wife when we consider signing documents, meeting with a loan officer, budgeting for the closing costs, coordinating escrow refunds, shopping for new homeowners insurance , and now writing a blog post about it. Was it really worth it for less than $2,000? For us, yes. We like the idea of having a mortgage paid off in 15 years. There are intangible benefits to paying off debt, like peace of mind and flexibility. I think sometimes people can go overboard with certain things like paying off all of their debt as early as possible , but some things just cant be captured with math.
Is it worth it for you to refinance? Try using that refinance calculator to shed some light. If you want a thinking partner to help you through the nonmonetary parts of the decision, or if you want someone to guide you in the direction of what a professional financial planner might believe is best for someone in your shoes, schedule an introductory meeting with us. Wed love to help clarify this decision and many other financial planning decisions for you.