Mortgage Refinancing

With interest rates near historic lows in 2021, now is the perfect time to consider refinancing your mortgage. A mortgage refinance involves paying off the old loan and replacing it with a new one from a lender of your choice. People refinance for a variety of reasons, including reducing their interest rate, shortening their repayment term, and tapping into home equity to access cash.

The most important thing to know about refinancing is that it involves closing costs, so it only makes sense to refinance if the new interest rate is substantially lower than the old one. In principle, the more time that has elapsed since your initial mortgage began, the wider the gap in interest rates needs to be for a refinance to be profitable. As a rule of thumb, in the early years of a mortgage a 0.75% lower interest rate should be enough to deliver savings, while in the mid-to-late years of the repayment term, a 1-2% lower interest rate is needed. Of course, always do your own calculations before refinancing.

Types of Mortgage Refinancing Products

Standard refinance

A standard refinance follows the same rules as a standard mortgage, with a choice of conventional loan or a government-backed loan such as an FHA loan or VA loan. Basically, you pick the mortgage product that suits you and use it to take out a new loan, replacing your old loan. The maximum loan-to-value (LTV) on a standard refinance ranges from 80-97%, depending on the lender and loan type.

Cash-Out Refinance

A cash-out refinance is when the new mortgage is greater in value than what you owe on the old loan, allowing you to cash out the difference. A cash-out refi can be used for any purpose such as paying off debt, paying tuition fees, making home improvements, or putting money away for a rainy day.

No-Cost Refinance

As mentioned in the intro, refinancing involves 2-6% closing costs, just like a regular mortgage. However, there is the option of not paying closing costs through what’s known as a no-cost refinance. The way it works is that the lender agrees to waive upfront closing costs in return for your commitment to spread the costs over the life of the loan. This is a great way to obtain the benefits of a refinance without having to pay anything now.

Streamline Refinance

A streamline refinance refers to the refinance of an existing FHA streamline loan (a type of FHA mortgage loan requiring limited borrower credit documentation). A streamline refinance reduces the time and costs to get a refinance. To qualify, your original mortgage must have been an FHA loan, the mortgage must be current (not delinquent), and the refinance must result in a benefit to you (by law, the lender cannot put you in a worse position in regards to the interest rate or repayment term).

Call today to start your refinancing process 714-671-8151