Home Mortgage Refinance
Frequently Asked Questions
What is a Mortgage Refinance?
As the name implies, refinancing simply means obtaining new financing for something you already own (or partially own, like real estate). The borrower basically transfers their existing loan from one lender to another lender (or the same lender) with a new set of loan terms.
As an example, if a borrower has a rate of 6% on their mortgage, and refinance rates are significantly lower, a refinance could make sense and save a lot of money over the term of the loan.
Borrowers essentially have one lender pay off their existing loan with a brand-new loan. The new loan will have a new set of loan terms, such as the interest rate, the term of the loan, or removal of mortgage insurance payments.
Should I Refinance?
Take a look at your current loan and financial situation, as well as your financial goals, when considering a refinance. If you have a high interest rate on your current loan or you need extra cash, you might want to consider refinancing. You may also want to look into refinancing if you want to lower your monthly payments, eliminate mortgage insurance, or reduce the total amount you’re paying for your home.
When should I Refinance?
If mortgage rates are falling, you may want to look into refinancing your mortgage.
If you are paying for mortgage insurance because your down payment was less than 20%, and your home has appreciated in value, you may be able to eliminate mortgage insurance by refinancing.
Another great reason to refinance is if your credit score has gone up significantly. If you had a lower credit score when you first got your mortgage, your interest rate was likely higher, which means higher monthly payments. With a higher credit score, you may qualify for a loan with a lower interest rate and lower monthly payments.
What type of loan should I get?
This is one of those mortgage questions that doesn’t matter much until rates increase. With low rates most people choose a 30-year fixed rate mortgage.
However, there are a lot of home loan options, including different length fixed-rate mortgages and adjustable-rate mortgages (ARM), along with conventional loans and government loans, such as FHA and VA.
For example, a 5/1 ARM might come with an interest rate 1% below a 30-year fixed, and it’s still fixed for the first five years. If you’re comfortable with an ARM, you can explore the many options available.
If you decide you want a fixed-rate home loan, you can determine whether a shorter-term option like the 15-year fixed is a better option. Also consider the FHA vs. conventional pros and cons to ensure you’ve covered all your bases if trying to decide between those two loan types.