Commonly Asked Refinance Questions
To clear the confusion regarding making the major decision of choosing refinance loan for your home, here’s the list of the commonly asked refinance questions most homeowners ask when considering refinancing loans.
What is Refinancing?
Refinancing your mortgage simply means paying off the old loan for a new loan with rates and terms that meet the homeowner’s financial interests or needs. Mostly, refinancing a loan saves homeowners some monthly money on their mortgage payments which can ease a homeowner from difficult unaffordable loans especially when their financial situation or needs change.
Should I Refinance?
If you are considering to drop your interest rate, change your mortgage terms from adjustable rate to a fixed rate, if your financial situation or credit score has improved, or if you simply cannot afford the high monthly payments due to financial difficulties then the answer is YES you should refinance.
When should I not Refinance?
You should not refinance when you cannot afford to cover the costs of refinancing. If you have been paying your mortgage for the past ten or fifteen (10 or 15) years, if you have already paid off most of the interest in your mortgage but If you choose to refinance, you will be basically starting the process all over again but most of your payments will cover the interest and increase the cost of refinancing. If your existing mortgage has substantial prepayment drawbacks, then opting for refinancing can cancel the savings you hope for from the refinance. If you plan to move in a few years, the monthly savings may not cover refinancing costs.
Will bad credit exclude me from a refinance loan?
Not exactly. You can still qualify for a refinance loan but you will have to assure that you are lowering the interest rate on your loan to make your refinance loan worth it. Just remember, the better your credit score, the better interest rate you can get. Refinancing your home mortgage loans will help you improve your credit scores once you start making lower monthly payments on your home mortgage, giving you a chance to pay off your other debts if you have any.
Are there different Types of Refinancing Loans options I can choose from?
Yes, Refinance loans consists of fifteen-year (15-year) refinance loans, thirty-year (30-year) refinance loans, cash-out refinance loans, cash-in refinance loans, government refinance loans, rate and term finance and short refinance.
- 15-year Refinance Loans: a 15-year refinance loan is a type of loan for those homeowners who want to pay a high monthly payment at a low interest rate. This is an opportunity for those homeowners who have had paid off their existing mortgage but don’t want to start a new 30-year refinance loan over again.
- 30-year Refinance Loans: a 30-year refinance loan is an opportunity for those homeowners who want to pay a fixed rate at lower monthly payments for 30 years.
- Cash-out Refinance Loans: a cash-out refinance loans is a type of loan where you can pull out equity from your home if you’re in a need of cash which will result in a higher loan balance resulting in higher monthly mortgage payments. If you apply for a new loan, you might be able to balance that rise on a lower interest rate. This is a great opportunity for those homeowners whose homes are worth more than what they owe on the existing mortgage. Bear in mind, lenders won’t offer this type of refinance to homeowners who owe more than what their homes are worth.
- Cash-In Refinance Loans: A Cash-In Refinance Loans is a type of loan which requires homeowners to bring in cash towards closing meaning you will be paying a small loan amount with low monthly payments to finish paying off your mortgage. This type of refinance is essential when you want to keep the loan amount or the loan-to-value ratio below a certain limit. This option is a good idea when you owe more on your mortgage then your home’s value, when you want to avoid the extra cost of mortgage insurance, and when you want to avoid high interest rates and payments on jumbo mortgage loan.
- Government Refinance Loans: The Federal Home Affordable Refinance Program (HARP) allows mortgage crisis homeowners to refinance up to 125 percent of the value of their home meaning this helps submerged homeowners to take advantage of the low interest rates on an offer with the current existing mortgage loan that’s insured by the FHA with less paperwork. Some states have programs to help homeowners avoid foreclosure.
- Rate and Term Refinance: Rate and Term Finance is a type of loan where the original loan is paid off and replaced with a fresh loan with a new rate and set of terms. This type of loan is perfect for those who want to lower their interest rate and/or change their loan programs.
- Short Refinance: A short term refinance is a type of transaction where your bank or mortgage lenders agrees to pay off your existing mortgage and replace it with a fresh new loan with a lower balance assisting you avoid a foreclosure. Although this type of refinance is very hard to obtain, some lenders might possibly offer this type of refinance alternating to a short sale or worse, foreclosure.
What are Points?
Points are also known as Discount Points and it’s a way of lowering your interest rate by paying 1 percent (1%) of the total loan up-front. Basically points is a form of prepaid interest.
Do I need to have equity in my home to Refinance?
Yes, always remember the general rule is you need to have 90 percent (90%) loan-to-value ratio prior refinancing. This basically means your home is worth about 10 percent (10%) more than the loan that is current on your home. Also, your home will need to have increased in value since you purchased it.
