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How to Refinance a Home Loan?

There are many benefits to refinancing including lowering your interest rate. Find out more here.

What is refinancing a mortgage?

Refinancing is the process of switching your existing loan with a new loan term and rate. The reasons homebuyers refinance range from reducing monthly mortgage payments to taking cash out of your home equity for a large purchase. This process is similar to the initial home buying process and you will likely have to pay closing costs to refinance your current mortgage.

What are the benefits of home refinancing?

Refinancing can be great for homeowners for a variety of reasons based on their needs. Some homeowners do it to get a lower rate and payment on their mortgage, some to adjust their loan term, and others may find additional benefits. Here is a list of some of the main benefits for a homeowner to refinance:

Lower Interest rates and lower mortgage payments

A lower rate could lower both the monthly principal and interest on a mortgage payment.

Use the equity in your home to borrow money

Cash-Out Refinances may allow a borrower with sufficient equity in their property to refinance their mortgage for more than is currently owed and pocket the difference.

Adjust the term of the mortgage

A decrease in the length of a mortgage term (say from a 30 year fixed rate to a 15 year) may increase the monthly principal & interest (P&I) payment, but the loan may be paid off sooner. Refinancing to a lower interest rate, with a longer-term mortgage will likely provide a homeowner a lower monthly payment; however, the total amount of interest paid in the longer term could be more.

Convert an Adjustable Rate Mortgage(ARM Mortgage) to a Fixed Rate Mortgage

Interest rates for an ARM mortgage can increase or decrease based on the housing market. Some people are more comfortable switching to a Fixed Rate Mortgage that has a steady interest rate and a steady principal & interest monthly payment.

 

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Remove Private Mortgage Insurance (PMI)

In some cases, homeowners may have mortgage insurance from when they first bought their home. Refinancing could potentially remove the mortgage insurance and lower your monthly mortgage payment.

How does refinancing work?

Refinancing anything, including a mortgage, is the process of applying for a new loan and using the money to pay off your original loan. This can change your monthly payments, interest rate, and loan term.

 

Is refinancing right for you?

Talk to Your On Q Mortgage Consultant

Is my credit score high enough to refinance?

If you do not have a history of late payments or missed payments on your mortgage or any other installment or revolving debt on your credit report, you will likely be in good shape. A habit of making your mortgage payments and paying your other bills on time will absolutely put your credit score in a positive position for refinance eligibility.

Do I have enough equity to refinance?

If your home is worth more than you owe on your existing mortgage, you’re in a much better position to refinance because you have more equity. A home with a lot of equity built up will have a lower loan-to-value ratio (LTV). Banks prefer a lower LTV because it mitigates the risk associated with the loan.

An LTV of 80 percent or less will also eliminate the need for private mortgage insurance or PMI. Higher equity built up and a lower LTV will also make it easier to refinance for a larger amount than your existing mortgage. This is known as a cash-out refinance. Funds raised in a cash-out can be used for many other expenses such as paying down debt, spending on home renovations, or helping with educational costs.

When Should I Refinance my Home or Mortgage?

People often refinance for a variety of reasons, so there is no best time to refinance. Typically, homeowners refinance when rates have dropped from when they bought their home to reduce the monthly payment.

Is now the right time to refinance?

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Why should I refinance my mortgage?

Refinancing your mortgage allows you to pay off your current loan and get a new mortgage in place. This can help you access equity in your home, consolidate debt, or simply take advantage of lower interest rates.

It is important to remember that there are costs involved with refinancing your mortgage and it is best to speak with a Mortgage Consultant to make sure that you will benefit!

What costs are involved in a refinance?

Refinancing can cost hundreds or thousands of dollars, depending on the loan amount, the type of loan, and the region of the country where the property is located and other factors. Typical costs include an appraisal fee, credit report, title insurance, and closing or attorney’s fees, and lender’s fees.

The cost to refinance will depend on the lender and associated third parties, so it pays to understand those cost obligations before committing.

Can I refinance an FHA, VA, or USDA loan?

Yes, you can refinance an FHA, VA, or USDA loan depending on your situation. There are multiple options for refinancing with these types of loans. There are options for a Streamline Refinance Loan. For example, an FHA Streamline Refinance Loan may not require employment or income verification, and that can cut down on the amount of documentation required. **

Talk to a local On Q Mortgage Consultant to learn more about the loan types and if you could benefit from refinancing.

Should I refinance now?

It’s important to make sure it makes sense for you to refinance. Research rates and compare your current rate to the current state of mortgage rates. Check your credit score and be sure not to make any major purchases if you are considering refinancing. If you’ve done your research and think refinancing would be a good option, contact your local On Q Mortgage Consultant to get started.

How much will I pay in closing costs?

Although refinancing to acquire a lower interest rate might be enticing, in the end, it may not make sense to pay points and closing costs to refinance even if you can lower your interest rate, payment or total interest expense.

As a rule of thumb, the number of closing costs you are able and committed to paying should not exceed the financial benefits of the lower interest rate you will receive through refinancing. Closing cost totals require validating before you commit to the transaction so you should make sure the lender provides assurance in writing.

To be safe, calculate how many months it will take to recover your closing costs. If your closing costs are $3,000 and your monthly savings are $125 after the refinance, it would take you 24 months to break even and start truly experiencing the cost savings of the lower interest rate on the new mortgage.

How Long do You Plan to Own Your Home?

Before you make a decision you need to weigh the cost of refinancing against the benefits. It’s very important to consider how long you expect to own the property before you decide to refinance. Even if you can get a lower interest rate, refinancing may not make sense. You could potentially pay more in closing costs than you would save. On the other hand, if you plan on living in the home for a while, you may save more by refinancing. Knowing how long you plan on keeping the property could factor in your decision to refinance.

In Conclusion

Deciding to refinance is a big decision and one that many homeowners may want to consider. You are able to take cash out of your home, lower your interest payment, or decrease your loan term. It is also a decision that will likely require you to pay closing costs. In order to find out if it is the best option, contact an On Q Mortgage Consultant today.

**There are temporary restrictions on some guidelines for refinance programs due to COVID-19 requirements. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to lend. Some restrictions may apply. Always consult with a professional advisor before making financial decisions.

Is refinancing right for you?

Talk to Your On Q Mortgage Consultant