When refinancing your mortgage, be sure to tell your lender what you want to achieve. Whether you want to cut your payment, shorten your term, or cash out the equity you’ve built in your house over time, tell your lender so they can help you achieve your financial goals. Your loan officer will be able to assist you in determining whether or not it makes sense to refinance your house if you specify your objectives.
If you’ve chosen that refinancing is correct for you and want to go forward, ask your lender to go over your refinancing alternatives with you. Here are some reasons why you might want to refinance:
1) Reduced Monthly Mortgage Payment
A reduced monthly payment is the result of a lower interest rate. You’ll spend less to own your house over the life of your loan if you have a consistent loan term and lower monthly payments.
2) Pay off your mortgage faster
This can be accomplished by refinancing your loan to reduce the term. You can, for example, reduce your term from 30 to 15 years or even lower. This will help you save money on interest in the long run.
3) Get out of your ARM
This can be accomplished by refinancing to a different loan package. When the initial fixed-rate period on your Adjustable-Rate Mortgage (ARM) expires, refinancing may be a good option for you. When the fixed period on your ARM expires, you have the option of refinancing into a fixed-rate loan or selling your house. If you don’t expect to sell your house when the fixed-rate period on your ARM expires, refinancing to a fixed-rate loan is likely your best option. It will ensure that your mortgage payments remain consistent for the duration of your loan.
4) Debt Consolidation / Cash Out
A Cash-Out Refinance is a great way to get cash out of your home’s equity to pay off other debts or cover a large expense like your child’s college tuition. With a cash-out refinance, you can also consolidate your debt to pay off additional high-interest loans. Ideally, with a Cash-Out Refinance, you will receive a check for the amount you are cashing out and a better rate than what you have, however, this isn’t always the case.
5) Get Your Mortgage Insurance Paid Off
Private mortgage insurance (PMI) is designed to protect lenders in the case that a borrower fails on a loan. If you’re refinancing a house with less than 20% equity, private mortgage insurance (PMI) is required. You can refinance to a conventional loan with no mortgage insurance after your mortgage principal debt reaches 80 percent of the original property value. By refinancing to a conventional loan with lender-paid mortgage insurance (LPMI), which does not require PMI, you can eliminate your PMI with as little as 5% equity in your house. This will last for the life of your loan, and if you do not refinance to eliminate your LPMI, you may end up paying more in the long run. To get low-interest rates and avoid paying PMI, you’ll need strong credit. Now that you’ve learned about the different benefits of refinancing, you’re ready to determine if it’s the best option for you.
If you decide to move forward with the refinancing, the next step is to finish your mortgage application. Your financial information will be required to be submitted to a lender as part of a mortgage application. The data you submit will be used to assist calculate the terms of your new loan. Borrowers must demonstrate to lenders that they are capable of repaying a loan. If you want to complete your loan application in person, you can meet with your lender. If it’s more convenient for you, most lenders will let you fill out a mortgage application online.
What are the 6 pieces of information that your lender requires to process a comprehensive loan application?
• Name
• Income
• Social Security Number (to obtain a credit report)
• Property address
• An estimate of the property value
• Amount of the Mortgage Loan
Ask your loan officer if you have any questions, and they will assist you in completing your mortgage loan application.
Remember that your loan officer is always ready to assist you and will gladly answer any queries you may have. Your loan officer will also review your application to ensure that all of the information you submitted is accurate and valid. They’ll send your application through their organization’s channels to have you authorized once they’ve finished reviewing it.
Every refinance loan has its own set of advantages.
We’ll explain the distinctions between the options so you can pick the best loan for your needs.
The majority of refinance products fall into one of two categories:
• Fixed-Rate Mortgage
• Adjustable-Rate Mortgage (ARM)
The fundamental difference between the two is that a fixed-rate loan maintains a consistent payment throughout the loan’s duration, but an ARM has a fixed rate for a set period and then adjusts after that period.
Two key factors should be considered while deciding which option to pursue:
1) How long do you plan on living in the home
2) The current interest rates
If you intend to stay in your home for a long time, you might consider refinancing to a fixed-rate mortgage, which will provide you with regular payments over the lifetime of the loan, shielding you from rising interest rates. If you plan to sell your house within the next seven years or so, an ARM may be more advantageous to you than a fixed-rate loan because it has a lower interest rate and payment. If you don’t plan on staying in the house for much longer than the original fixed-rate period, this can save you money. The difference in monthly payments between a fixed-rate loan and an ARM can be minor or large depending on current interest rates. Work with your loan officer to figure out which is best for you.
Here are all the refinance options:
1) RATE AND TERM The rate and term refinance programs serve the purpose of changing the interest rate and/or term of your mortgage. A fall in interest rates generally triggers a rate and term refinance, allowing borrowers to cut their monthly payments and save money over the life of their loan.
2) CASH-OUT REFINANCE A cash-out refinance allows homeowners to spend the equity they’ve created in their houses for other purposes. Cash-out refinances are popular with borrowers who require extra cash for significant expenditures or projects. A cash-out refinance will result in a higher principal loan balance than before. The new loan amount will include the amount of your old loan, the cash-out amount, and settlement expenses.
3) FHA STREAMLINE Current FHA homeowners can refinance their mortgage without an appraisal and with minimum documentation with an FHA Streamline refinance. You must have an FHA-insured mortgage and be current on payments to qualify for a Streamline refinance (not delinquent). To be eligible, the lender must also conclude that the simplified refinance provides you with a net tangible benefit. This is merely for the FHA to FAF to guarantee that the transaction’s advantages surpass any expenses involved with the loan’s completion.
The Loan Estimate is one of the paperwork that your lender is obligated by law to supply you with for your safety. Within three business days after submitting a complete mortgage loan application, your lender will offer you a Loan Estimate. The Loan Estimate contains crucial information about your loans, such as an estimated interest rate, monthly payment amount, and total closing expenses. Check out the CFPB’s Loan Estimate Explainer to learn more about the Loan Estimate Form and become familiar with the definitions of key terminology. Remember that the Loan Estimate is just that: an estimate. A Closing Disclosure will be provided to you after the transaction, including the final charges.
The Closing Disclosure, which is similar to the loan estimate and another form required by law for your protection, will be sent by your lender.
The Closing Disclosure will be delivered to you at least three working days prior to your closing date.
The Closing Disclosure contains critical information regarding the loan program you selected and was created to assist you in understanding all of the transaction’s costs as well as the closing date.
Ask your lender for an explanation of the information on the Closing Disclosure is incorrect or the figures aren’t what was agreed on.
Your lender will contact you to authorize the setting of a closing date once all of your loan approval contingencies have been met.
You will sign the final documents and pay the closing charges and fees at the closing.
Documents Requiring Your Signature Before Closing
This signifies that you accepted your lender’s loan terms and agree to repay the loan amount plus the indicated interest.
The paper will specify the due dates for payments as well as the address to which they should be addressed.
The Note also describes what happens if you don’t pay your mortgage on time.
This document, which may be referred to as a Mortgage, Security Instrument, or Deed of Trust, will require your signature at closing and will serve as security for the loan.
By signing this agreement, you provide your mortgage lender the right to foreclose on your home if you do not make your mortgage payments on time. The lien will be removed from your property if the debt is paid in full.
The Initial Escrow Disclosure Statement details the particular costs you’ll be paying into escrow each month as part of your mortgage agreement. Taxes and insurance will be paid with this cash.
These are legally binding documents that explain your financial obligations and your legal rights as a homeowner.
You have three business days after your refinance closes to cancel or rescind the loan. This page describes when and how to cancel the loan, as well as any potential implications.
Your lender’s closing department will evaluate and approve the funding of your loan once all final closing documents have been signed.
It may take up to three business days for your loan to be funded.