Do You Need An Appraisal During The Refinancing Process
Depending on the type of loan youre applying for, your lender may not require an appraisal on your home during the house refinancing process. For example, homeowners with an existing loan backed by the Federal Housing Administration or the U.S. Department of Veterans Affairs may be able to skip a refinance appraisal if they choose an FHA streamline refinance or VA interest rate reduction refinance loan , respectively.
For other loan types, your lender may offer an appraisal waiver and instead use an alternative method to value the home. This can often save time and money instead of doing a full appraisal. Keep in mind that the homes value will determine whether you qualify for a refinance and will play a role in how much you can borrow against your equity if you plan to do a cash-out refinance.
For example, conventional mortgages typically require a maximum LTV ratio of 80% for a cash-out refinance. If, for instance, you owe $300,000 on your mortgage, and you wanted to borrow an additional $50,000 against your equity, that means your home would need to appraise for at least $437,500. To figure out your LTV ratio, divide the balance of your mortgage by the homes value.
The Pros And Cons Of Refinancing
|Pros of refinancing||Cons of refinancing|
|Access the equity youve built up in your home.||Increasing the amount you are borrowing may lengthen the time it takes to pay off your mortgage.|
|Consolidate your debts and lower your overall interest rate.||Your overall interest rate might be lower but the amount owing on your mortgage may be higher.|
|Possibly get a lower interest rate and pay less for your mortgage over time.||There may be additional costs, including a prepayment charge.|
Can You Lose Your House With A Reverse Mortgage
When refinancing with a reverse mortgage, you could lose your home, but only if:
- You dont live in the home or use it as a primary residence.
- You move out of the home or sell it.
- You are away from the home for more than 6 months or 12 consecutive months.
- You pass away and no spouse is listed on the home loan.
- You stop paying your property taxes and homeowners insurance.
- You dont maintain the home according to FHA requirements.
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Whats The Difference Between Refinancing Vs Renewing Your Mortgage
Renewing your mortgage means staying with your current lender for another term. Youll have an opportunity to renegotiate your interest rate and term, and you wont need to re-apply.
When you refinance, you are paying out your existing mortgage in order to negotiate a new mortgage loan agreement. This is usually because you want to access the equity in your home or lower other borrowing costs. There may be prepayment charges depending on when you choose to refinance.
What Do I Do To Refinance
The first thing you must do when considering refinancing is to consider exactly how you will repay the loan. If the home equity line of credit is to be used for home renovations in order to increase the value of the house, you may consider this increased revenue upon the sale of the house to be the way in which you will repay the loan. On the other hand, if the credit is going to be used for something else, like a new car, education, or to pay down credit card debt, it is best to sit down and put to paper exactly how you will repay the loan.
Also, you will need to contact your mortgage company and discuss the options available to you, as well as discussing with other mortgage companies the options they would make available. It may be that there is not a current deal which can be met through refinancing that would benefit you at the moment. If that is the case, at least you now know exactly what you must do in order to let a refinancing opportunity best benefit you. When refinancing, it can also benefit you to hire an attorney to decipher the meaning of some of the more complicated paperwork.
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Bad Credit Mortgage Refinance
If your credit has turned south for one reason or another, and if you are looking for a bad credit mortgage refinance then this is usually not a problem as long as you have home equity built up.
The rate on a bad credit mortgage refinance can be a bit higher maybe 0.50% to 1.5% higher than the lowest rates however this rate can be lowered in a year or two once we get your credit back up over this time.
Once the refinance consolidates debt and takes care of any other credit issues, its just a matter of staying on track and your credit score will improve.
Refinancing A Mortgage In Canada: Your Step
Owning a home allows you to build credit, grow equity and invest in your future. Whether you are shopping for your very first home or youre a long-time homeowner, its important to understand how to navigate the mortgage process, especially when it comes to refinancing a mortgage.
When you first apply for your mortgage loan, especially if you have never applied for one before, you may get interest and finance terms that are less than ideal. The good news is that you dont have to endure the terms of your mortgage loan forever. Refinancing a mortgage may allow you to secure a much more favorable loan term and interest rate, which can make a significant difference when it comes to your long-term financial picture.
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Break Your Existing Mortgage Contract Early
You would consider breaking your mortgage early if you wanted to obtain a lower interest rate or access equity from your home. In this case, you eliminate your existing mortgage and take on a brand new one with any lender. Breaking your mortgage will incur a prepayment penalty from your bank, which is normally equal to around three months worth of interest charges. If you can justify the cost of the prepayment penalty with your new mortgage rate, then breaking your mortgage can still be worth it.
When To Refinance Your Mortgage
To determine if you should refinance, crunch the numbers yourself. I think its a good time to refinance if its right for your financial situation, says Michael Chabot, SVP of residential lending at Draper & Kramer Mortgage Corp. Look for savings of at least a half percent and make sure you feel extremely confident youll be able to cover your new monthly payment for the life of the loan.
Also, make sure that youre planning to stay in your house long enough to recoup the refinance cost. It might not be worth spending thousands of dollars in closing costs to refinance a house youre planning to sell soon.
Ultimately, the best time to refinance is the time that works best for your personal financial circumstances and goals. If you can get a lower interest rate and afford the closing costs, a refinance could help you save on your monthly payment. But if youre not feeling certain about your finances or your plans for your house in the coming months, it could make sense to wait a bit to explore a refi.
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What Does It Mean To Refinance A Mortgage
In the financial world, the term refinancing means using a new mortgage loan to replace an existing one. So, refinancing a mortgage means obtaining a brand-new mortgage to replace your current one.
There are several reasons people refinance their mortgages, which we’ll get into in detail later. But for the time being, know that refinances are generally done to improve the terms on your mortgage, to save money on interest by getting a lower mortgage rate, to cash out some of your home equity, or a combination of the three.
The Importance Of Credit Scores
Economic trends have a big impact on the interest rate youll receive. Fixed-rate mortgages, for example, tend to move in lockstep with the yield on a 10-year Treasury bond.
Individual factors also have a lot to do with your rate. Your income and job history play a significant part, as does your credit score, which is based on information in your credit report. The higher your score, the lower the rate youll have to pay on your new loan.
According to the website myFICO, in 2021 a borrower who has a score of 760 or higher will typically pay $190 less per month on a 30-year, fixed-rate mortgage worth $216,000 than someone with a score of 620, which amounts to $2,280 less per year. The rate difference in this example is 2.6% vs. 4.19%.
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How Do I Find A Reputable Refinance Lender
Finding a mortgage lender to help with your refinance is crucial to the refinancing process. Its important to do your research and shop around for a lender that best fits your needs. Dont be afraid to negotiate and find the best lender that can make the refinancing process easy and painless. We would love to earn your business at Rocket Mortgage.
What Does It Mean To Refinance A House
When you refinance the mortgage on your house, youre essentially trading in your current mortgage for a newer one, often with a new principal and a different interest rate. Your lender then uses the newer mortgage to pay off the old one, so youre left with just one loan and one monthly payment.
There are a few reasons people refinance their homes. You can use a cash-out refinance to make use of your homes equity or a rate-and-term refinance to get a better interest rate.
A refinance could also be used to remove another person from the mortgage, which often happens in the case of divorce. Finally, you can add someone to the mortgage.
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Locking In Your Rate: Know The Strategy
Predicting where interest rates will move weeks ahead of time is a fools errandnot even the banks know where theyre headed. Once youve found a good offer, its always a good idea to lock in your rate, so you know itll be the same by your closing date.
Suppose, for example, that the bank estimates you can close on the loan within 30 days. You might want to ask to lock in your interest rate for 45 days to make sure it doesnt inch upward by the time you finalize the note.
Getting a mortgage rate lock thats longer than needed doesnt always work in your favor, however. Whenever banks freeze their rate, theyre assuming the risk should interest rates edge upward, so theyll often compensate for a longer lock period with a higher rate or additional fees.
Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development .
Homeowners: Leverage Your Home Equity Today
Our rate table lists current home equity offers in your area, which you can use to find a local lender or compare against other loan options. From the select box you can choose between HELOCs and home equity loans of a 5, 10, 15, 20 or 30 year duration.
Consumers who need a small sum of cash for a short period of time may want to consider either credit cards or taking out an unsecured personal loan, though these typically charge significantly higher interest rates than loans secured by appreciating assets like second mortgages.
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Can You Get A Better Refinance With A Mortgage Broker
Approaching multiple mortgage providers might seem like a lot of work, especially if you have a limited amount of spare time. Thats one of the benefits of working with a mortgage broker, who compiles your information and contacts multiple lenders on your behalf. Its like a one-stop shop for your mortgage needs.
Because brokers are paid by the banks and mortgage companies with which they work, you dont need to pay them directly for their services. Plus, lenders sometimes reward them for bringing in customers by providing them with special rates.
Still, there are drawbacks to outsourcing your search. Brokers may get compensated for putting you into a bigger loan, for example, even if its not in your best interest. And certain lenders dont work with brokers, so it can sometimes limit your options.
Theres no problem in using both methods, though. You can use a broker to do the heavy lifting but look for one or two quotes on your own to see how they compare and find the best lender for you.
Getting A Lower Interest Rate
Refinancing to get a lower interest rate can save you a lot of money over time, depending on the prepayment penalty and the size of your outstanding mortgage. If you hold a variable rate mortgage, then expect to pay a penalty of three months interest, and if you hold a fixed rate mortgage, then you will pay the greater of three months interest or interest rate differential penalty . Donât let penalties deter you – understanding the numbers helps you calculate whether a refinance will save you money.
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Shop The Best Refinance Rates
Now for a little legwork or more likely web work and phone calls. You want to shop for your best refinance rate and get a Loan Estimate from each lender. Each potential lender is required to issue the estimate within three days of receiving your basic information.
The Loan Estimate is a simple three-page document that details the loan terms, projected payments, estimated closing costs and other fees.
Compare the loan details from each lender and decide which one is best for you. This is a good time to work that mortgage refinance calculator.
Calculate Your Mortgage Refinancing Savings
To calculate your monthly savings from refinancing, use a mortgage calculator to enter these numbers and get your new monthly payment:
- Amount to refinance
- New interest rate
- New loan term
Compare your new monthly payment to your old monthly payment. The table below shows how grabbing a lower interest rate could save you $204 per month, or $2,448 per year.
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Skipping Mortgage Payments During The Refinancing Process Can Damage Your Credit Scores
Refinancing your mortgage may take longer than you expect, so dont count on the process closing by a certain month. Some borrowers have gotten into trouble by skipping a mortgage payment when they assumed their refinance would go through. A missed or late payment can negatively impact your credit scores.
The best way to avoid delinquent payments is to stay in constant communication with your lenders and set reminders for yourself to avoid missing important due dates. Make payments toward your original mortgage as you usually would until your refinance is closed. Remember that payment history generally accounts for the largest portion of your credit scores, and missed payments can remain on your credit reports for seven years after the delinquency.
Even after your refinance is complete, it may take several months for the new account to appear on your credit reports. If you give it time and the loan still doesnt show up, make sure your lender is reporting your payments to the CRAs. The refinancing process has some impact on your credit scores, but how you handle the new loan will be more important in the long term.
Submit The Necessary Documents
The refinancing process involves the review of various documentation. Your consultant will have to review your loan repayment history, credit score, and various other supporting documents. The consultant may also ask a few questions before preparing your file for underwriting. Some essential materials that you must present along with your application include W-2 income statements, asset documentation, income statements, and tax filings. Once you avail all the required documents, the mortgage consultant will notify you and submit them for review.
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Reasons Not To Refinance Your Home
Refinancing your home is not always the best option. Your personal situation should be the biggest factor to consider. Some reasons not to refinance your home are:
- You Do Not Plan To Stay in Your Home For Long
When you are considering refinancing your home, one of the major things to note is how long it takes to recover the new loan closing costs. This is known as the break-even period. It is after this period that you start to save money on your new mortgage. You need to know the closing costs and the interest rate on your new loan to calculate the break-even point. If you plan on moving before the break-even period ends, refinancing your property is not a good option for you.
- You Can’t Afford Closing Costs
If you cannot afford to pay the closing costs out of pocket, it is not a good idea to refinance your mortgage. There is an option to add the closing costs to your loan and pay it back monthly. Doing this could make your monthly payments so high that you dont end up making any savings.
- Higher Long-term Costs
Consider what the long-term cost of refinancing is if most of the payment you’ve made on your 30-year mortgage covers the interest. Refinancing into a shorter-term mortgage could increase your monthly payments and make it unaffordable for you. Refinancing into another 30-year mortgage would reduce your monthly payment, but the long-term cost could remove any savings you hope to make.