No Cash-Out Refinance - A No Cash-Out Refinance is a transaction in which the new mortgage amount is limited to the sum of the remaining balance of all existing mortgages, closing costs (including prepaid items), and any discount points.Many people will do a no cash out refinance to simply lower their term from 30 years to 25 or from 20 years to 20 years, etc... By lowering your term you will save a substantial amount of mortgage interest. Cash out refinances can also be done for the opposite reason: A borrower may be on a 15 year mortgage and something happens at work or an unexpected expense comes up and it may be necessary to increase your term back up to a 30 year mortgage instead of the 15 so that you can free up some money each month.
You are only allowed to receive $2,000 or 2%, whichever is the lesser, of your loan amount back in a rate and term refinance, also known as a no-cash out refinance. No cash out refinances are done for many reasons. One reason is to lower the rate and or term of your loan. Lowering your rate can save you money from your monthly mortgage payment and lowering your term can cut the time it takes you to pay off your mortgage saving you tens of thousands (possibly hundreds of thousands) of dollars of mortgage interest.
You are allowed to receive a maximum amount of $2000 during a No Cash-Out Refinance.
An experienced mortgage broker often submits Rate and Term Refinance applications to the banks that currently hold the mortgage notes, because there is a good chance the homeowners qualify for "Streamline Refinance" programs, which offer reduced documentation and less settlement costs to the homeowners.
No Cash Out means different things to different lenders. If you are looking for a mortgage that is non conventional then the rule of thumb is 1%. That means you cannot have more then 1% cash in hand for a non cash out refinance.
Another reason to do a no cash out refinance is because you currently have a 3,5,7 year fixed-adjustable rate mortgage and it is about to expire and start adjusting every 6-12 months, or you would like to get off the adjustable rate mortgage all-together and into a fixed rate mortgage before the market climbs into the 7% range.
Debt Consolidation Home Refinance - A debt consolidation refinance is when a borrower uses the equity in his/her house to consolidate some or all of their existing debt by refinancing their current mortgage.
When analyzing the benefits of a debt consolidation refinance you should factor in the amount of time and money it will take you to pay off those credit accounts with your current payment schedule.
Many times by consolidating debt through a refinance a borrower is able to not only save money from their total monthly expenses but they are able to reduce their mortgage rate and term also. Such as changing from a 30 year to a 20 year mortgage or a 20 year to a 15 year mortgage. This can not only save a lot of money in mortgage interest by cutting years off of your mortgage but it can many times save money monthly still.
When a homeowner applies for a mortgage, the lender bank evaluates the applicant's repayment capability by dividing the total monthly obligation by his income. The result of the Debt-to-Income Ratio qualifies/disqualifies the applicant. When a homeowner applies for a Debt-Consolidation loan, the payments for the debts to be paid off at closing are not included in the DTI Ratio.
By using the equity in your home to pay down high interest credit cards you can possibly save your family hundreds of dollars per month. You also benefit by being able to deduct your mortgage interest. You should seek the advice of a mortgage broker before proceeding with your refinance to ensure you are matched to the right loan program.
Remember that the interest one pays on their mortgage is generally tax deductible while the interest on your personal debt is not. This is a great item to keep in mind when looking to do a debt consolidation refinance.
When considering a debt consolidation refinance you should look at your short and long term financial goals. Paying high interest bearing credit accounts with your mortgage will often times save you thousands over time.
Sometimes a debt consolidation refinance may cause your total mortgage payment to increase. This is because you will be borrowing more money, to pay off the debt. Don't worry though, because if you are paying $400 in credit card debt every month and your mortgage payments increase by $200. You will still be saving $200 every month!
While some say that there is good debt and bad, it could be argued whether any debt could really be considered "good". One thing is fairly certain, unsecured consumer debt and credit card debt in particular is the worst kind of debt one can take on. There are usually strong financial benefits to consolidating such debt into your home mortgage.
If you are currently making the minimum credit card payments, then it may take you several years to pay them off. This is considering that you continue to make those same minimum payments throughout the life of the debt. If you were to do a debt consolidation, you could have that debt paid off within a matter of weeks.
Debt consolidation refinancing is the practice of moving short-term debt, into a home refinance loan. At closing any debts that have been chosen and listed will be paid from funds, above what is necessary to pay off the original mortgage balance.
Should I refinance my second mortgage? - Many consumers are becoming worried about the rising interest rates on their second mortgages and want to know if they should refinance to consolidate their first and second mortgage into one.
One factor a borrower can use to gauge if they should refinance or not is a blended rate calculation. The blended rate is the weighted average rate for your first and second mortgage at any given time. If you can lower your blended rate by refinancing your first and second mortgage into a single loan, you may want to refinance.
The tricky part is if you decide to wait, how long should you wait. If you refinanced recently and have a low fixed rate first mortgage, you may have to choose between a higher fixed rate or keeping your second mortgage that continues to increase in rate.
As the balance on your first and second mortgage change, so will your blended rate. The best way to calculate your current blended rate is to use the following example:
First mortgage balance multiplied by first mortgage rate plus the second mortgage balance multiplied by the second mortgage rate and divide that number by your total balance of both loans.
There are calculators available on the Internet that can quickly calculate your blended rate if you plug in these basic numbers. Of you can contact me and I can help you calculate your blended rate and decide if refinancing is right for you.
Second mortgages are often tied to the prime rate. The prime rate has been adjusting upward the last several years. Consolidating your second mortgage with your first is often worthwhile even if rates have gone up and your first mortgage is at a very attractive rate compared to what is currently being offered.
If the balance on the second mortgage is relatively small and will be paid off soon, you may not want to refinance the two mortgages into one single loan. There will be costs associated with refinancing. If the second mortgage will be paid off within the next year, your exposure to the increasing rate environment is limited. In this case, the security offered by a fixed rate refinance may not justify the closing costs.
If your second mortgage is a home equity line, it is tied the prime rate which has been rising rather quickly. If you have a low rate first mortgage and do not want to refinance it to consolidate your two loans, consider replacing your equity line with a fixed-rate second. Rates are lower and are fixed for the life of the loan which can be up to thirty years. Ask your mortgage consultant about these.
All other things being equal, sometimes homeowners just want to have one mortgage payment to make every month.
Another factor to consider is that you loose the flexibility, and security that a Home Equity Line of Credit provides. Many borrowers keep an open line of credit even if it has no balance as a rainy day fund. In the event you need money quick or need a large amount of money a home equity line can provide that if there is available funds on the line. By refinancing you may lower your payments but you may also loose that security.
Alternately if there is available equity in your home you may be able to refinance that second mortgage and add another line of credit that has a zero balance. This allows you to lower your current payment while maintaining the security of available funds
How do you figure out what your blended interest rate is? For example, if you currently have an 80/20 loan, with interest rates of 6.625% and 9.875% respectively; You take the first rate of 6.625 times 80% and come up with 5.3%. You then take your second loan, I.E. 9.875% and multiply it by 20% and arrive at 1.975%. Add the two together and you have your blended rate, 7.275%. If you can refinance with a single loan for a lower interest rate, it may be a good idea.
An experienced mortgage planner will be able to help you evaluate refinancing a second mortgage. Important things he should ask you would include:
1) when does your draw period end (for lines of credit)? At the end of the draw period, your loan will convert to a fixed rate second mortgage and you lose the flexibility of being able to draw against the equity for emergencies.
2) how does the margin on the new loan compare to the margin on the old loan? If your home has benefited from significant appreciation, your total loan to value may be low enough to get a lower margin which will help offset the higher indexes of today's market.
3) How are you utilizing your second mortgage? Paying off your higher rate credit card balances to get out from under the interest or floating a small business are common considerations FOR a second mortgage, but should not become routine.
There are other factors to take into consideration to such as how long you intend to own the property. If you are going to sell soon then you might want to stick it out. The only way to truly know is to look at all factors and plug this information into a financial calculator or mortgage calculators. If you are inexperienced in finances then consult you mortgage broker and ask him to run some calculations for you.
A large part of the decision on if to refinance your second mortgage will be based on your first mortgage. If you have a low rate first mortgage you may not want to refinance them together. Instead you may choose to replace your current second mortgage with a home equity line.
Should I refinance my ARM to a fixed rate - There are benefits and negatives to both a fixed rate and an ARM mortgage, but for the borrower who is thinking about refinancing their ARM into a fixed rate, there are many things to consider. By Refinancing your ARM to a fixed-rate mortgage you will avoid the payment increase when your ARM interest rate begins to adjust. You will also lock into a more stable payment for the term of your mortgage.
If you are in a situation in which you MUST refinance, pay close attention to what is going on in the market. Make sure you are dealing with a savvy and honest loan officer or Mortgage Broker. Sometimes the yield curve becomes inverted, and you can actually refinance into a 30 year fixed mortgage, at a lower or equal rate than a 3 or 5 year ARM!
You need to find what your break even point is for your current loan. Have you already broken even? If not how much more will it cost you to continue in your current loan? Have an honest discussion with a broker to decide what the best course of action is.
In an economic climate where short term rates and long term rates are about the same, it may be better to refinance adjustable rate mortgages into fixed rate loans. Home buyers are willing to share the risks of an adjustable rate mortgage when the adjustable rate is significantly lower than fixed rate mortgages. If such advantage no longer exists, fixed rate mortgage is often a preferred choice.
Many people take adjustable rate mortgages because credit challenges prevented them from having a low fixed rate. If you have made all of your mortgage payments on time and your credit score has increased you may be able to refinance into a Fixed Rate Mortgage without increasing your payments.
If affordability is a determining factor in deciding your mortgage structure, ask your loan officer or mortgage broker if structuring your loan as an Adjustable Rate will give you more flexibility.
When deciding to refinance your adjustable rate mortgage (ARM) into a fixed rate mortgage, you first need to decide how long you think you will be in your home. If you are in the second year of a 5 year ARM, and only see yourself in the house for another 2-3 years, then you may want to wait until it is absolutely necessary to make the change. Your mortgage broker can advise you as to what the market may do, but they will not know what is in store for years to come. Concurrently they will also not know the number of years you will be in the home, along with any changes in your life that may require you to move.
Five Reasons to Refinance - Five Reasons to Refinance Your Mortgage
There is an old adage that says if you can improve your interest rate by at least two percentage points, then it is a good time to refinance. While that may work as a general rule of thumb, the truth is there are other reasons to refinance:
1. Lower your interest rate
Securing a lower interest rate is one of the top reasons for refinancing. This can make a big difference in your monthly out-of-pocket costs for housing and save money on financing fees.
2. Build equity faster
If you are in a position to make higher monthly payments due to an increase in salary or other good fortune, you may want to switch from a 30-year loan program into a 15 or 20-year loan structure. This enables you to build equity faster and save a tremendous amount of money on financing fees.
3. Change your loan program
Many homeowners who start with Adjustable Rate Mortgages desire to move to the stability of a Fixed Rate mortgage later on down the road. As interest rates fluctuate, making original deals less attractive, people will change their loan programs in order to capitalize on the best rates available.
We can provide you with loan comparison charts to find out what you can save with various loan programs.
4. Credit score has improved
If your credit score has improved as a result of making your mortgage payments on time and in full, you may be in a position to take advantage of your improved credit standing.
We can review your current credit score, the terms of your existing mortgage, and review options for other loan programs that could not only reduce your monthly payment, but also save on interest fees paid over the life of the loan.
5. Use the equity you have established
A cash-out refinance allows you to tap into the equity you have built up in your home. You may want to pay off revolving credit card accounts, send a child to college, or use the money for home improvements or personal expenses.
Regardless of your reasons for wanting to refinance, my team and I are interested in helping you make a decision that works best for you.
We will begin by reviewing the terms of your existing mortgage program. It will be important for us to know the purpose of the refinance and how long you plan to stay in the home. This helps us to determine whether or not it is beneficial for you to pay points up front to secure a lower interest rate on your new financing.
Throughout the process, we will present you with spreadsheets outlining various loan programs, and continue to monitor rates in order to inform you of the best time to refinance.
You may consider refinancing if you have a variable rate second mortgage which you would like to roll together with your first mortgage, for one lower monthly payment which is fixed.
Another reason might be if someone has just added huge escrow debt due to their backed tax that the lender paid on behalf of the borrower. Since the lender wants to get this money back within 12 months period, the borrower's monthly payment gets increased substantially. Refinancing will usually spread the borrowed escrow money over 360 month payments and thus level out your monthly obligation.
Some people will refinance if their financial situation has worsened or changed and they need to try and lower their payment(s) by increasing their loan term. Sometimes a borrower may be on a term that is less than 30 years and by increasing their loan term to 30, or even 40 years the borrower may be able to save a considerable amount of money and lower their monthly mortgage payments. This is one of the many reasons why some people refinance.
Traditionally in days past, the primary reason to refinance was to lower the interest rate. Nowadays, with the huge variety of different loan programs that each offer some specific financial advantage to a homeowner depending on his particular situation, lowering the rate is no longer the primary reason for a homeowner to refinance.
How to avoid costly refinance mistakes - So why do you want to refinance your mortgage? Are you trying to save money with a lower monthly payment? Are you trying to lower your interest rate? Do you want to refinance with a cash-out equity loan?
If you're simply trying to find a lower interest rate, make sure you examine the related fees and closing costs. If you can save enough money to cover these costs, refinancing may be right for you. We will provide you with a Good Faith Estimate so you can analyze these costs.
It will be important to understand if your current mortgage carries a "prepayment penalty" fee. If the payoff comes with this fee associated your estimated costs, fees and or cash out will be dramatically affected by this additional cost.
We will do a complete financial analysis to see if combining some of your credit debt to your refinance will be cost effective. We will compare interest rates on your current debt as well as monthly cash flow advantages.
If you are quoted a loan with settlement charges that you feel to be extremely high, make sure you contact another mortgage professional to get another quote to compare the first one to. Too many people do not shop around enough or even at all to make sure they are getting a fair deal. When comparing the quotes make sure you look over the entire quote as a whole and not just at the settlement charges. Compare the rates, compare the closing costs, compare the loan programs that they have worked up for you, etc... Company A may have higher settlement charges but a rate that is better by a full percent and Company B's closing costs may be a little lower but his rate is higher and on a worse loan program than Company A. If the quotes are close it is usually best to go with the company that you feel most comfortable with and that you feel is the most upfront.
When comparing loans between several companies, be sure that you are being quoted on the same loan program. Different mortgage loans can have different closing costs associated with them. Also, ask each company for a copy of the Truth-In-Lending (TIL). The TIL will break down the total cost to close your loan, reflected as the APR. The TIL will also show if there are any prepayment penalties with the new loan.
Debt Consolidation Refinance - Many homeowners use the equity in their home to pay down or pay off their revolving credit card debt. This is even more so now that the credit card companies have increased their minimum payment requirements. When considering a refinance to consolidate your higher interest debt such as credit cards you should look at the long term financial benefits. Keep in mind that paying your credit card bills at the minimum monthly payment will take you 20-30 years to completely pay off, assuming you do not add any more debt. The credit card cycle can be never ending which will just drain your bank account of any savings you may have.
Even if your nominal mortgage interest rate goes up because you are borrowing more money through a debt consolidation refinance, you should sit down with your loan officer and review how much lower your total monthly spending on bills becomes before and after the debt consolidation refinance. Homeowners with average levels of credit card debt very often save 50% or more on their total monthly payments after refinancing for debt consolidation, and very often can borrow additional cash out of the closing at a much lower interest rate than any new credit card purchases would allow.
Consolidating credit card debt can accomplish many things. First, it can help increase your credit scores by paying off the credit card debt you are able to show a better ratio of credit card balances compared to your credit card limits. Second, the interest may be tax deductible. Third, this can help to maximize overall cash flow and free up some money for a much needed family vacation, saving for retirement, or paying a child's education expenses. Consult a mortgage professional to find out what loan type is best for you.
When consolidating credit card debts by refinancing your home mortgage, you new debts are now secured by your home. While it is unlikely to be forced into foreclosure if you default on credit card debts, in the event you should default on your mortgage, you can lose your home.
A debt consolidation refinance is considered a cash out refinance. Depending on the lender you will have the option have taking the cash from escrow and paying yourself, or having escrow paying the debts off for you. If you choose to have escrow pay them, you will need to provide current payoff statements and addresses to send the check.
Choosing the right type of loan for your debt consolidation refinance will take the help of a mortgage broker. The mortgage broker is experienced with helping customers obtain the best loan programs to achieve your desired goals. With the many options that are available, you will want to be sure you are being given all possible solutions to your debt consolidation refinance. You will need to go over all of your financial goals, both current and future with your broker. With the information you give to the broker, they will be able to pinpoint some good programs which will help you reach those goals. Be sure to look at each option and analyze which one works best for your personal needs and comfort levels. Not all loans are created equally, so be sure you understand all the loan programs your broker is offering you.
When considering a debt consolidation refinance you should look at how doing this will benefit you financially over the long term. Asking yourself some simple questions like:
Am I consistently making larger payments on my credit cards to reduce the balance?
Am I at the limits of my credit cards?
How long would it take for me to pay off these cards at my current payment structure?
Am I gaining any benefit from these interest rates on my credit cards?
What is my current housing payment and debt payment combined?
Once you have answers to these simple questions you should be able to have a pretty good idea at how a debt consolidation refinance will help you financially, not only now but also your long term financial outlook.
Remember that as is the case with most refinances, you will be able to skip a month or two month's mortgage payments. This is extra money that you can put towards consolidating debt, if you did not have enough equity to do a total debt consolidation.
Be careful not to squander your home equity. Sadly, in many cases a family will take cash out of their home equity to pay off high interest rate credit card debt but only a few months later have the credit cards charged up again. In this instance you have traded unsecured credit card debt into a secured debt the lender can and will repossess: your home!
Refinance to Lower Your Monthly Expenses - When most people think of refinancing they are thinking in terms of lowering their rate of interest or their monthly payments. Even as interest rates are rising, refinancing often makes sense for many American households. Even if you have to slightly raise the rate of interest that you are paying, if you can refinance to pay off other high interest debt you will likely see a huge improvement in your monthly cash flow. It is often more beneficial to lower your overall monthly expenses, not just your mortgage payment.
Remember that the interest you pay on your mortgage is tax deductible, where as the interest on your credit cards is not. That is why a slightly higher mortgage interest rate, is not as bad as most consumers may think.
You can lower your monthly expenses by refinancing into an interest only loan. This will help you to save a good amount of money from your monthly mortgage payment alone. If you were to consolidate debt in your refinance and switch to an interest only loan this would save you a lot of money per month and truly maximize your monthly cash flow.
When analyzing the benefits of a refinance you should look at both the short term and long term financial benefits. You should consider the length of time you plan on styling in your current property, how much you will save over time, and how much you will save monthly. A good way to figure how beneficial a refinance can be if you are paying off debt is to figure how long and at what cost it will take to pay off you current debts at the payment levels you are currently making.
Revolving debt interest rates are generally much higher than mortgage rates. In today's market many credit card companies are raising the minimum payments considerably. This causes hardship in many households. Often times refinancing and paying this type of debt off through the loan can be very beneficial.
Make sure you are certain that the end result will benefit you financially. Instead of refinancing your whole mortgage you may want to take out a second mortgage or HELOC to reduce debt payment amounts.
Be careful not to squander your home equity. Sadly, in many cases a family will take cash out of their home equity to pay off high interest rate credit card debt but only a few months later have the credit cards charged up again. In this instance you have traded unsecured credit card debt into a secured debt the lender can and will repossess: your home!
Refinance Out of An Adjustable With A Fixed - Everywhere you look, economists believe rising interest rates are imminent. According to popular believes, when Adjustable Rate Mortgages (ARM) start to adjust, the new interest rates will be significantly higher, thereby putting unprepared homeowners, who have been accustomed to the low payments of ARMs, at risk of default and eventually foreclosure. If a homeowner with an Adjustable subscribes to this outlook, it is time to refinance out of the ARM and get into a Fixed Rate Mortgage (FRM), while long term rates are still historically low.
Typically, adjustable rate mortgage can adjust from 2-5% on their first adjustment. Check with your mortgage servicer to see how your mortgage will adjust, and when it will adjust.
Here in early 2006 financial markets are experiencing a phenomenon known as the inverted yield curve. In a nutshell, that means that interest yields on long term investments like bonds are actually lower than those paid for shorter term ones. What this means for the mortgage market is that long term fixed rate loans are actually priced lower than the ones that have only a short fixed rate period and then convert to an ARM. During periods of inverted yield curves it is a great time for many borrowers to refinance out of their ARM mortgages into long term fixed rate ones.
If you have an adjustable rate mortgage and you are considering refinancing into a fixed rate to get out of the adjustable you need to consider your short term and long term goals. If you plan on moving from the home within the next few years refinancing into another Adjustable Rate Mortgage (ARM), might be the best option. However, if you have no intention of ever moving then a fixed rate mortgage may be the best option for you. Therefore consider all options before jumping into a new mortgage.
If you want to know the details of how and when your ARM will adjust read through your mortgage Note. The Note is one of the many documents you signed at closing and you should have a copy of. The Note will describe when your rate can adjust, and how the adjustment is calculated, and what the adjustment caps are.
Along with the security of a fixed interest rate you may also be able to take cash out of your home's equity in the same transaction. Its best to do this at the same time you refinance your adjustable rate mortgage to keep from having to pay closing costs again later. Ask your preferred mortgage professional if your home has grown in value and if a cash-out refinance is right for you.
When you have an adjustable rate mortgage at some point it will adjust. When your loan is a few months away from adjusting it a good idea to look into refinancing your loan to a fixed rate. When refinancing to a new loan look into all the options. Going with a 25, 20, or 15 year term might be better option rather than a 30 year if you are able to afford the monthly payment.
Many people take adjustable rate mortgages because credit challenges initially prevented them from having a low fixed rate. If you have made all of your mortgage payments on time and your credit score has increased you may be able to refinance into a Fixed Rate Mortgage without increasing your payments.
To really understand you adjustable rate mortgage, you need to know two things, the index and the margin. The index is the adjustable component can be one of several indices. The most common index used is the 6 month LIBOR. Indices move up or down based on numerous economic factors. The margin is the fixed component of the adjustable and does not move. When you adjustable rate mortgage adjusts it's when the index and the libor added together are greater than your current rate.
Should I use my current broker to refinance - If your mortgage broker did a good job with your first mortgage loan there are many reasons to do business with him/her again. You may be able to secure a slightly lower rate on your refinance. You also have the advantage of the broker having all your information on file already reducing the amount of questions you have to answer on the application.
Even if you did like your previous mortgage professional, it is always a good idea to get a couple of quotes from different companies. If the previous mortgage broker is way out of the ball park, they may be able to restructure the loan to get you into a better situation.
Anytime you find a mortgage broker that you are completely satisfied with and feel you can trust you should stick with them for all of your future mortgage transactions. By sticking with someone who is familiar with your personal situation this can help them provide excellent advice, become more acclimated and familiar with your finances and goals, and find the right home loan program for you. Also, many brokers will offer discounted rates or fees when you go through them again for your home financing needs.
Many mortgage brokers make their entire living from referrals and some may choose to reward their best clients. If you have used the same broker several times, or if you have referred lots of friends and family to your mortgage broker, you could ask for a customer loyalty rebate.
If your mortgage broker served you well before, then they will serve you well again.
When to refinance - When is a good time to refinance? "I have heard that lowering my rate by a minimum of 2% is the only time I should refinance, is this correct", asks one borrower? A good time to refinance depends on your individual situation. Only refinancing when you can lower your rate by at least 2% is an old myth. There are many reasons to refinance your home mortgage loan and many times when refinancing can help you. Talk with a mortgage adviser to see what loan programs are available for you and if refinancing your home would make sense.
A good time to refinance is when the interest rates get much lower than when you obtained your home mortgage loan. By refinancing to a much lower rate you can not only save a lot of money from your monthly mortgage payment, but you can also look into cutting your mortgage term down from 30 years to 20 years and still be able to lower your mortgage payment. By lowering your mortgage term you can generally save 10's of thousands, and sometimes 100's of thousands of dollars in mortgage interest alone. Therefore, it is a good idea to pay attention to the interest rates from time to time to see where they are at or check with your personal mortgage representative occasionally to get an update from him/her.
If you are currently paying private mortgage insurance (PMI) and know that your property value has substantially increased, and then it would be in your best interest to refinance. With property values increasing, your loan-to-value will be decreasing, which means that a rate and term refinance will eliminate the PMI and start saving you money immediately.
When you need to get cash out of the equity of your home you can refinance to obtain this. Refinancing your mortgage to get cash out can be done as a first mortgage refinance, or the cash out can be obtained by getting a HELOC, a home equity line of credit, or a second mortgage. All options can provide many benefits but you must talk with a licensed mortgage advisor in order to see which option will be ideal for your particular situation.
You may want to consider a refinance if you have some expenses coming up such as:
College tuition
Weddings
Home Improvement
These are just a few reasons why you may need to refinance your current mortgage.
Whether or not refinancing is beneficial is mainly up to you. If you are refinancing because you want to lower your rate but you only have 20 years left on your loan, will a new 30 year loan be the right program? It might be. If you want a lower monthly payment than it probably is right but if you want to lower the total amount of interest paid on the loan, it may not be. You have added 10 more years worth of mortgage payments on your home. Is the monthly savings worth the extra 10 years worth of interest? Only you can be the judge. You know your budget better than anyone else and if you don't have a budget, then it is definitely time to get with your mortgage professional and create one. You won't be sorry you did.
Normally, our customers refinance to get a lower interest rate or to lower their monthly payments, it really depends on your individual goals. If you would like to reduce the amount you are paying in interest, you may want to consider a loan with a reduced term. If you would like a smaller payment, you may want to consider a longer term, an adjustable rate interest or an interest only loan however you may pay more interest over the life of your loan.
Also, other good reason to refinance is for investment purposes. Consult with your financial planner or accountant to find alternative investment opportunities. You might find a high return on investment might be better suited for you rather than having your home equity accrue with no interest opportunity.
If you have an adjustable rate mortgage that is set to adjust soon, now may be the time to start shopping for your next mortgage. The process generally takes 20 - 30 days but the extra time can be spent removing credit report errors, gathering all documentation, and deciding on what loan program is best for you.
One obvious reason to refinance is when the fixed rate period of any type of adjustable rate mortgage (ARM) loan has come to an end. For example the fifth year of a 5 year ARM and the third year of a 3 year ARM.
There are so many programs out there today then there used to be that can give the home owner the edge in creating a financial plan for their future. Whether its home improvement, debt consolidation, or lowering the monthly payments for cash flow, or getting equity cash out for other important financial decisions (education, investments, business, medical, etc), a mortgage broker professional can assist you in reviewing these options and what will work best for you.
Sometimes life may throw you a curve ball such as a medical emergency or a major repair on your property. Even if you are not reducing your rate refinancing may be the best and only solution to solve these problems and avoid either troubled credit or further damage to your residence.
If you are considering a second refinancing, don't overlook this potential tax write-off: When you pay points to refinance, you must deduct the amount over the life of the loan, usually 30 years. But when you refinance a second time, all of the points that have not yet been deducted from the first refinancing can be written off in a lump sum.
When is the right time to refinance? - This is a question that only you can answer. Many lenders will tell you that you ?need? to refinance if it is going to save you $50 or more per month. You have to ask yourself if the costs of doing the loan will outweigh the benefits that you will receive from the new loan. A good loan officer can help you determine this by finding out what the cost of the new loan will be, and what your new payment will be. From there, it is up to you to determine if it is really in your best interest.
There are some basic "no brainer" times to refinance. If your credit was less than perfect and your mortgage is an ARM with a short fixed period (2 or 3 years) you should plan to refinance just before you enter the adjustment period. Once you enter the adjustment period your rate could increase by as much as 2%. You should refinance to a fixed rate mortgage, you will most likely lower your payments or keep your payments and go to a shorter term such as 20 or 15 years
The right time to refinance really depends upon your current financial situation and what you need to do to get into a better financial situation. If you are looking to consolidate debt and bills into your mortgage, then you will need to wait until you have enough equity built up into your home to do this. If you simply want a lower rate and or term then you should consult your mortgage professional to see if the benefit of refinancing makes enough financial sense to you. Therefore, each unique situation requires its own personal analysis to see when the right time to refinance may be.
If you have ARM and it is about time to adjust from fixed to adjusting period, you might consider refinancing to get better term on your mortgage. By switching to a fixed-rate loan, you will not only reduce your payment, you will also likely lock in an attractive rate for as long as you own your home.
Many people refinance and use cash taken out to purchase investment properties. While this certainly isn't for everyone, real estate investment can be very lucrative and can many times require very little cash out of pocket. If you are considering buying an investment property and would like to take cash out of your equity ask your mortgage professional how this can work for you.
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