It’s hard to resist the ‘sell your house’ ads or ‘refinance house’ in your mail and also the frustration of mortgage repayments. Keeping up with monthly mortgage repayments can be a tough task. Is getting a new loan to cut down the expenses your next thought? You might want to reconsider your options.
The pandemic had a hard hit on everyone, with people losing jobs and it being tough to manage expenses. Refinancing your mortgage can shorten the life of your current mortgage and also provide lower interest rates. It can significantly lessen your monthly mortgage payment although, selling your home makes more sense if you’re unable to manage the monthly installments. If you are confused between selling your house or refinancing? Choose what is best for you by reading the blog below.
Possible Reasons To Refinance House
Refinancing is a process where you replace your existing mortgage with a new loan. People usually refinance their mortgages to get a new ones for lower interest rates and reduce monthly payments. There are many reasons for homeowners to refinance some of them are listed below.
To Lengthen Or Shorten The Mortgage Term
Refinancing can help you lengthen the mortgage term which allows you extra time to pay off your loan. It also lowers the amount you are entitled to pay every month. Refinancing also helps in shortening the mortgage term. When you increase your monthly payment you repay faster and save the running interest amount. This way you own your house faster and save thousands on interest.
To Change The Structure Of Your Loan
If you have an Adjustable Rate Mortgage (ARM) and you’re past the fixed period, your monthly interest rates may vary significantly. You can refinance the ARM to a fixed-rate loan which will make your monthly repayment and expenses predictable. Changing the structure of your loan gives you control of your monthly expenses.
To Change The Type Of Loan
Homeowners refinance their government-backed loans to a conventional loan as they build equity. If you pay 10% of the down payment for a Federal Housing Administration (FHA) loan, you are entitled to pay the mortgage insurance premium. Although, when you build a 20% equity on the conventional loan, you can get away with private mortgage insurance.
To Cash Out Your Equity
In cash-out refinance you replace your old mortgage with a new one with a higher balance. The difference between the old and new mortgage is paid in cash to the homeowner at many more favorable terms. As these mortgages have higher principal and low-interest rates they can be used for almost anything like paying off debt or getting new purchases.
Look For Available Options
Consider refinancing as an option but want to sell your house in the coming future. So why not look at some options? Before jumping to conclusions.
A loan modification is less expensive than refinancing. When you choose to modify the loan your lender agrees to make changes on mutual terms. It consists of changing your monthly repayment amount, interest rates, and your term. In rare cases, the lender might also reduce a chunk of the principal from the amount. So, if you are facing financial difficulties this might be an ideal option for you.
No-Closing Cost Refinance
While applying for a refinance house, lenders usually offer you a no-closing-cost refinance. By picking this option you merge your closing costs in the principal of the loan. In a no-closing-cost refinance you pay a higher interest rate and pay nothing while closing.
It may sound enticing although, you’d end up paying closing costs on the term of your loan anyway. However, if you are selling a house early you might only pay a few dollars. A no-closing-cost refinance may be beneficial when you cash out your equity. It provides financial aid if you are selling your distressed home.
Choose To Hold Off On Your Refinance
It is always better to skip a refinance house if you are not planning to stay in it for long. It makes sense to hold off on your refinance when circumstances aren’t much favorable. Calculate the time you’d be living in the house to earn the money back from closing.
How does Refinancing work for your Home?
Refinancing your house involves many of the same steps as buying a home, but the process is often less complicated. While it can be difficult to predict exactly how long your refinance will take, most refinances are completed within 30 to 45 days. During this time, you’ll work with your lender to gather necessary documents and complete any required appraisals or inspections. Ultimately, refinancing can be a great way to lower your monthly mortgage payments or access equity in your home.
Let’s take a look at the process :
Before applying for a refinance, it’s important to research and compare the different types of options available to find the best fit for your financial situation. Once you’ve decided on a lender, they will ask for the same information you provided when you first bought your home, including your income, assets, debt, and credit score.
- You may need to provide documents such as your two most recent pay stubs, W-2s, and bank statements.
- If you’re married and live in a community property state, your spouse’s documents may also be required.
- Self-employed individuals may need to provide additional income documentation, and having your tax returns from the past couple of years on hand is a good idea.
Keep in mind that you don’t have to refinance with your current lender and it’s important to shop around and compare rates and client satisfaction scores before making a decision.
Deciding Interest Rate
When refinancing your loan, you may have the option to lock in your interest rate or float it. If you choose to lock in your rate, it means that the interest rate will remain the same until the loan closes.
On the other hand, if you choose to float your rate, it means that the interest rate may fluctuate until the loan closes. It’s important to consider your financial goals and the current market conditions before making a decision.
Lock-In your Refinance Rates
When refinancing your mortgage, it’s important to consider locking in your interest rates to avoid any potential market fluctuations. The length of the rate lock period can vary depending on your location, loan type, and lender, typically lasting anywhere from 15 to 60 days.
Opting for a shorter lock period may result in a better rate, as the lender doesn’t have to hedge against market changes for as long. However, if your loan doesn’t close before the lock period ends, you may need to extend the rate lock, which could come with additional costs.
Float Your Rate before Locking In
When applying for a loan, you may have the option to float your rate instead of locking it in. This means that you don’t commit to a specific rate and instead take the risk of the rate either going up or down.
While this may result in a lower rate, it also puts you at risk of getting a higher mortgage rate. However, some lenders may offer a float-down option that allows you to take advantage of lower rates if they become available.
Ultimately, if you’re satisfied with the current rates, it’s generally a good idea to lock in your rate to avoid any potential rate increases.
When you apply for a refinance loan, the mortgage underwriting process begins. This involves your lender verifying all of your financial information to ensure its accuracy.
Additionally, the lender will verify details about the property, including its value, which is determined through an appraisal. The appraisal is a crucial step because it can impact the options available to you.
For example, if you want to take cash out, the value of your home will determine how much money you can receive. If you’re trying to lower your mortgage payment, the value could impact your eligibility for certain loan options or whether you can get rid of private mortgage insurance.
When refinancing your home, it’s important to get an appraisal to determine its current value. Your lender will typically order the appraisal, which involves an appraiser visiting your property and providing an estimate of its worth.
To ensure a favorable appraisal, it’s recommended that you tidy up your home and make any necessary repairs beforehand. Additionally, creating a list of any upgrades you’ve made to the property since purchasing it can help demonstrate its value.
After a home appraisal, your next steps will depend on the outcome.
- If the appraisal matches or exceeds the loan amount you’re seeking for a refinance, the underwriting process is complete and your lender will provide details for closing.
- However, if the appraisal comes back lower than expected, the loan-to-value ratio may be too high for your lender’s requirements. In this case, you can choose to decrease the amount of money you want to refinance, cancel your application, or opt for a cash-in refinance by bringing additional funds to the table to meet the terms of your current deal.
Closing On Your New Loan
After the underwriting and home appraisal are complete, the final step is to close your loan.
- A few days before closing, your lender will provide you with a Closing Disclosure document that outlines all the final numbers for your loan.
- The closing process for a refinance is typically faster than for a home purchase and is attended by the people on the loan and title, as well as a representative from the lender or title company.
- During the closing, you’ll review the loan details and sign the necessary documents. Any closing costs that aren’t included in your loan will need to be paid at this time.
- If your lender owes you money, such as in a cash-out refinance, you’ll receive the funds after closing.
Once you’ve closed on your loan, you have a 3-day grace period before you’re locked in. If you need to cancel your refinance, you can exercise your right of rescission during this time.
Frequently asked questions about (FAQs) Refinancing
What is the cost of refinancing?
The cost of refinancing your home loan can vary depending on several factors, such as the lender you choose and the value of your property. Typically, you can expect to pay between 2% to 6% of the total loan amount.
However, the good news is that you may not have to pay these costs upfront, especially since the adverse market refinance fee has been eliminated. Some lenders offer a no-closing-cost refinance option, which means you won’t have to pay any fees at closing.
However, keep in mind that you may end up paying a higher interest rate over the life of the loan to cover these costs.
When should I refinance my mortgage?
Deciding when to refinance your mortgage requires careful consideration of various factors. One important factor is the current market trends, including interest rates. Your financial situation, particularly your credit score, is also crucial to consider.
To determine if refinancing is worth it, use a mortgage refinance calculator to calculate your break-even point after accounting for refinancing expenses. It’s also important to understand how refinancing differs from other mortgage options, such as loan modification and second mortgages.
Is a second mortgage the same thing as refinancing?
It’s important to understand the difference between a second mortgage and refinancing. Refinancing involves replacing your existing mortgage with a new one, resulting in one monthly payment.
On the other hand, a second mortgage, such as a home equity loan or HELOC, requires an additional monthly payment on top of your original mortgage. While second mortgages may have lower closing costs, they often come with higher interest rates compared to refinancing.
It’s important to carefully consider your options and choose the financing option that works best for your individual needs.
Can I reduce my monthly mortgage payment without refinancing?
If you’re looking to lower your monthly mortgage payment without going through the process of refinancing, a mortgage recast may be a good option for you. This involves making a large lump-sum payment towards your principal balance, which allows your lender to recalculate your monthly payments based on the new, lower balance. This can be a straightforward way to reduce your monthly payments and make your mortgage more manageable.
How soon after closing can I refinance?
The timing for refinancing after closing on a mortgage varies depending on the type of loan and the investor in your mortgage. Some lenders may allow you to refinance as soon as 30 days after closing, while others may require you to wait 6 months or even a year.
The frequency of refinancing also depends on factors such as the amount of equity you have built up and your current mortgage balance. It’s important to check with your lender to determine the specific guidelines for refinancing your mortgage.
Will refinancing my home affect my credit?
Refinancing your home can have a temporary impact on your credit score. This is because the lender will need to run a credit check and perform a hard inquiry on your credit history.
However, as long as you continue to make timely payments on your debts and avoid opening new credit accounts, your credit score should recover within a few months. So, while there may be a short-term dip in your credit score, refinancing your home should not have a significant long-term impact on your credit.
Sell Your Home For Cash
Refinancing your home may be flexible but in some cases, it may not be an ideal option. If you are selling your distressed home, refinancing may not be worth it. Selling your home to a cash buyer is a better deal you can sell remodeled houses to Elite Properties New York and avoid the hassles of refinancing. Elite Properties is a ‘we buy houses for cash company’, which means we buy houses in any condition. You can sell your house fast for cash in NY and close the deal in less than a week. We buy property for cash and also pay the closing costs, which allows you to move faster with your plan. Call us today at 718-977-5462 to know more.