REFINANCING YOUR MORTGAGE
A refinance is the replacement of your
current home loan or several loans (such as first lien and second
lien) with a new loan. The
property and borrower are the same: the financing is the only thing
that changes.
There is very little difference in the
processing procedures of refinancing an existing mortgage and applying
for one to purchase a new home. Your
loan request must be processed thoroughly and all credit documents
ordered. Many borrowers
assume that since their existing mortgage has been paid on a timely
basis, they automatically will be accepted for a new mortgage.
However, with the exception of an FHA streamline mortgage, a
new mortgage usually means new credit approval.
Refinancing a mortgage usually covers all
the costs associated with a new mortgage loan.
This cost of refinancing will usually take the first ¼
to ½
percent
of
the interest rate improvement, depending on the size of the loan. Since the costs are relatively fixed, it is easier for a larger loan
to absorb these costs than for a smaller loan.
There are many reasons for you to consider
refinancing your existing mortgage.
The most common reason is to benefit from a lower rate. People also refinance to reduce their monthly
payment, reduce their loan term or to take cash out of their home. An individual many also be unhappy with the terms
of their existing mortgage. Their
existing mortgage many contain a balloon payment forcing an early payoff.
People often have refinanced to obtain an assumable mortgage
for easier resale of their home at a later date.
A mortgage refinance should be the easiest
loan a Certified Loan Broker can generate for you.
If properly presented, they often have a high probability of
closing. The reasons for
this success stems from the fact that there is only one party involved
in the transaction.
The Certified Loan Broker will communicate
all of the loan requirements and help you with the details that are
necessary to get your loan closed.
Included in this list would be things as simple as termite
inspection or as complex as comparable sales data for the appraiser.
To help determine when they should
refinance their mortgage, many people use the "2% rule". This means that they will only refinance their
current loan if they can achieve an interest rate reduction of at
least 2%. The reality is
that whether or not you should refinance is determined by several
factors of which the interest rate is only one. Your paramount concern
in refinancing your loan should be how long you plan to live in your
current home. If you plan
to be there for a long time, say 10 years, then reducing your rate by
as little as 1% can still have a tremendous benefit.
You should also consider the term of the loan as well.
Most people do not even consider 10, 15 or even 20-year loans
when refinancing. These
shorter-term loans allow the lender to reduce your interest rate since
you will be paying the loan off faster.
Because your loan balance has also declined since you first
purchased your home, this combination could allow you to pay off the
new loan in half the time with only a small change in your payment.
When in doubt, check with a Certified Loan Broker to see what
is best for you.