Shop Around For Mortgage Lenders
You dont have to refinance with the same mortgage lender you got your first mortgage from, and shopping around for a loan is one of the best ways to make sure you get a good deal. Take the time to compare offers from a few different mortgage refinance lenders. This could mean going through the preapproval process a few times, but the good news is, if multiple lenders check your credit within a short period of time, your score wont reflect the multiple inquiries.
When Should I Refinance
If mortgage rates are falling or your home has dramatically increased in value, you may want to look into refinancing your mortgage. 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.
Refinancing To Tap Equity Or Consolidate Debt
While the previously mentioned reasons to refinance are all financially sound, mortgage refinancing can be a slippery slope to never-ending debt.
Homeowners often access the equity in their homes to cover major expenses, such as the costs of home remodeling or a child’s college education. These homeowners may justify the refinancing by the fact that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source.
Another justification is that the interest on mortgages is tax-deductible. While these arguments may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision nor is spending a dollar on interest to get a 30-cent tax deduction. Also note that since the Tax Cut and Jobs Act went into effect, the size of the loan on which you can deduct interest has dropped from $1 million to $750,000 if you bought your house after Dec. 15, 2017.
Many homeowners refinance to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. Unfortunately, refinancing does not bring automatic financial prudence. Take this step only if you are convinced you can resist the temptation to spend once the refinancing relieves you from debt.
It takes years to recoup the 3% to 6% of principal that refinancing costs, so don’t do it unless you plan to stay in your current home for more than a few years.
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Freddie Mac Enhanced Relief Refinance
If you would like to refinance but your loan-to-value ratio exceeds the maximum allowed for a standard no cash-out refinance product, an Enhanced Relief Refinance might make sense for you. To be eligible for this option you must meet the following criteria:
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Freddie Mac must own your loan. Use our Loan Look Up tool to find out.
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The note date of your loan being refinanced must be on or after October 1, 2017.
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You must be current with your payments with no 30-day delinquencies in the most recent six months and no more than one 30-day delinquency in the past 12 months.
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Your mortgage being refinanced must not have been previously refinanced through HARP, a federal program launched in 2009 that expired on December 31, 2018.
An Enhanced Relief Refinance Mortgage may help you obtain a monthly payment you can afford, by reducing your mortgage rate and monthly payment, replacing an ARM with a fixed-rate mortgage or reducing your mortgage term .
Reach out to your lender to discuss your refinance options. Remember, you do not have to use your current lender to refinance your loan. In fact, its in your best interest to meet with multiple lenders and compare their Loan Estimates to determine which lender offers the best terms and cost. It may take more time, but these extra steps can save you thousands of dollars over the long haul.
Remember, your new loan will have a new rate and term and youll be responsible for all costs associated with the refinance.
To Take Cash Out For Investing
Even when the stock market isn’t rocky, this is not a generally good idea. The problem with cash is that it is too easy to spend. If you are disciplined and will truly use the extra money to investor to build your emergency fundthis can be a good option. However, paying down a mortgage at 4% per year can be a better deal than plunking your cash into a CD that earns 2% every year. Make sure you are a savvy investor who understands both the risks and potential upside before playing with the equity in your home.
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Do The Math And Prepare
Before you refinance your mortgage, its important to be sure that refinancing is a financially sound move based on your situation. Before you start applying for offers:
- Check your credit to make sure you can qualify for a new loan.
- Make sure you have enough equity in your home usually at least 20 percent.
- Check current interest rates to see whats available.
- Make sure you can fit the new payment in your monthly budget.
When Does It Make Sense To Refinance A Loan
Refinancing a loan can make sense when you can save money by paying less interest, free up room in your budget by lowering your monthly payment, or change other terms of your loan. Generally, you may want to look into refinancing when:
- You have a variable-rate loan and want to lock in a fixed rate
- You can lower your monthly payments
- You want to remove a cosigner from a loan, such as a parent from a student loan or a former spouse from a mortgage
Saving money is a common goal. However, if you’re looking into refinancing because you’re having trouble affording your payments, also ask your lender about hardship options. Lenders may offer to temporarily or permanently modify your loan’s interest rate, term or other specifics without refinancing. But generally, this only happens when borrowers are experiencing a hardship and have trouble affording their regular payments.
Your decision can also depend on the type of loan you want to refinance and the cost involved. Watch out for the following:
- Personal loans may have application and origination fees, while credit cards often charge balance transfer fees.
- For secured loans, such as a mortgage, see if there will be closing costs that you need to pay or add to your loan amount.
- Your current lender may charge a prepayment penalty or fees if you pay off the loan early.
Here are a few key points to keep in mind if you’re considering refinancing different types of debt:
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How To Speed Up The Refinance Process
Every situation is different, but theres a lot you can do to avoid delays and even speed up the process:
Find out if refinancing is right for you
The Bottom Line: Your Circumstances Determine The Right Time To Refinance
When youre getting ready to refinance, make sure youre factoring in your goals, your loans term, your interest rate and the overall costs associated with your decision as well as your monthly payment. Refinancing a mortgage loan can be an extremely useful option for many homeowners, but its important to take the time to properly assess whether a refinance is the best fit for your needs before fully committing to it.
We also always encourage you to take the opportunity to speak with a financial advisor before making any big moves affecting your future monetary planning.
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How Do I Refinance
Before moving forward, make sure your . Check your credit report and take care of any issues first. This may take some time, so get started early. The better your score, the better your chances of getting a lower interest rate which will save you money in the long term.
The next step is to find a loan with better terms than your current one. We can work with you to determine the best loan and best rates for your needs.
Its a good idea to lock in your loan rate. When you lock in your rate, youre guaranteed to get that rate at closing, regardless of whether market rates are higher or lower at that time. You can decide to lock in anytime from the day you choose your loan, up to five days before closing. Although if you wait, you run the risk that rates could go up.
Once you’ve found the right loan, it’s time to apply. Bring all of the paperwork your Chase Home Lending Advisor recommended with you when you apply. This will make things go faster. Your advisor will also be able to give you an estimated closing date at this time.
The new loan will pay off your existing loan. However, you need to continue making payments on your existing loan until its paid off. You’ll begin making payments on the new loan once it pays off the old one completely.
Will Buying A Car Hurt My Chances Of Getting A Mortgage
Yes, buying a car impacts your credit. Your payment history is the most important component of your credit scoreso late payments can cause your scores to drop in a big way. That can kill your chances of getting a mortgage. Another way buying a car can impact your score is in changing your credit mix.
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How Does Refinancing A Loan Affect The Loan Term
You can refinance a debt by taking out a new loan and using the proceeds to pay off a current debt. The new lender might pay your current creditor directly, or it could send you the money, which you’d use to pay off your current loan.
In either case, your new repayment term options can depend on the type of loan, the lender, the loan amount and your . If you can choose between a shorter- and longer-term loan, consider:
- A shorter term could help you qualify for a lower rate and mean you’ll pay off the debt sooner, but it will also lead to a higher monthly payment.
- A longer term can lower your monthly payments, but results in paying more interest overall.
There are pros and cons to both options, and the best choice will depend on your current financial situation and goals.
Usda Loan Refinance Rules
The U.S. Department of Agriculture has a loan program to help individuals in rural areas buy homes with no down payments and low interest rates. These come in the form of either direct loans or loans through private lenders guaranteed by the USDA.
The USDA offers three different types of refinances: non-streamlined, streamlined, and streamlined-assist.
- For a streamlined or non-streamlined loan, you must have made on-time loan payments for 180 days prior to your loan application.
- To be eligible for a streamlined-assist refinance, you must have made on-time loan payments for 12 consecutive months prior to your loan application.
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Other Things To Consider:
Other things to look at include: The repayment period the monthly payment interest rates. The repayment period is how many years you will be making payments on the loan. You should compare your original loan to your prospective refinancing plan. Does refinancing mean youll have more or less time to pay it off, or will it remain the same? Federal loans frequently have timelines ranging from 10 to 30 years, whereas refinanced loans are typically only given 5 to 20 years. Part of that is based around your monthly payments. Private lenders are likely going to have higher minimum payments.
A federal student loan is most likely to have a fixed interest rate. This means that the interest rate is set to the rate you were given when the loan was created. It will remain at that rate for the duration of the loan repayment. A private lender might give you the option of a fixed interest rate or a variable interest rate, which would mean that the interest rate would be in flux throughout the repayment period.
Use College Raptors new Student Loan Finder to discover personalized loan options. Compare lenders and interest rates to find the ideal student loan for you!
*APR includes a 0.25% interest rate reduction for enrollment in automatic payments.
Disclosures
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Is Refinancing Right For Me
If you havent refinanced your mortgage during this time of record-low interest rates, its worth exploring whether youre eligible and whether its the right choice for you.
Anyone who has debt owes it to themselves to explore if that debt can be cheaper, says Lauren Anastasio, CFP at SoFi. It doesnt matter what your age, income level, property value, etc. If you owe someone money and you think theres a chance you could borrow that money cheaper, anyone should look into it.
When Should You Not Refinance
One of the first reasons to avoid refinancing is it takes too long for you to recoup the closing costs of the new loan. This is known as the break-even period or the number of months to reach the point when you start saving, thereby offsetting the costs of refinancing.
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Why Should You Refinance Your Mortgage
There are several reasons why homeowners consider refinancing their mortgage. The biggest reason is to save money on their monthly payment. You can do this through a refinance by moving to a lower interest rate or by eliminating your private mortgage insurance payment from the loan amount.
Another reason to consider a mortgage refinance is to unlock some of the equity you have built into your home. You can use the money to pay off high-interest debt like credit cards or personal loans or invest it back into your home through remodeling projects.
Refinancing can also help you reduce the amount of time you will be paying your home loan. By shaving years off your mortgage, you can unlock more equity faster or walk away with more money if you decide to sell your home.
If you are curious about how you could save money, a mortgage refinance calculator can help you compare the costs and benefits of refinancing.
Completing a mortgage refinance at a lower rate can help you reduce your monthly payment. Refinancing from a 6% interest rate to a 3% interest rate can put over $4,000 back in your pocket every year.
How Much Will It Cost To Complete The Refinancing
Depending on your lender and your loan terms, you may pay as little as a few hundred dollars or as much as 2% to 3% of the new loan value to complete a refinancing. If its going to cost you $3,000 to complete the refinance and it will take four years to recoup that money, it may not make sense for you.
Alternatively, if you can refinance and pay only $1,000, and have no plans to sell anytime soon, its very likely worth paying that $1,000 to save over time. In addition, some lenders allow you to roll your closing costs into the amount of the loan, so you dont have to come up with money out of pocket for closing costs.
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Year Fixed Rate Loan Example
The traditional, 30 year, fixed rate mortgage is the most popular home loan. If you are refinancing to drop the payment, reduce the rate or pull out cash, you are starting over the loan for a new 30 year term.
With refinance rates still in the 3s in many cases, there still are chances to cut your payment be reducing the rate. When beginning a new loan term, and the payment is dropped, the key is to make the exact same payment on the new loan that was made on the current loan. Doing so ensures you will enjoy the benefit of lower loan interest costs, a faster time to pay off the loan, and of course, you also can make lower 30 year payments if your financial situation worsens.
For example, a smart customer may benefit by taking out a new 30 year note with a 1% lower rate, in exchange for $300 in savings per month. By making a payment of $1700 on a principle of $282,000 at 4.375%, rather than the payment of $1400 that is due every month, the home loan will be paid off in just 21 years rather than 26 with the higher rate. Also, this homeowner always can go back to the lower payment if there is a financial difficulty.
If the same payment that was being made on the old loan is paid on the new one with a lower payment, the home loan gets paid off years faster.
