There are many reasons why people refinance. Benefits of refinancing can differ for many situations. Some of the most typical reasons to refinance are as follows:
1. Cash out Consolidation - to consolidate debts (providing monthly cash flow)
2. General Cash out - to renovate your home, business, pay medical bills, pay off unpaid income taxes, pay for college or special events such as weddings, etc.
3. Lower Rate - Lower Payment
4. Lower Rate combined with a Shorter Term (or a Longer Term)
5. Reverse Mortgage - If you are 62 or older, you can possibly eliminate your mortgage payment, excluding taxes and insurance.
If you are refinancing just to lower your rate and payment, it's generally a good time to move forward once mortgage rates are 1% lower than the current rate on your loan. It may be a viable option even if the interest rate difference is less than 1% in some scenarios especially if you are taking cash out or have another reason to refinance overall. Here's an example: Your payment, excluding taxes and insurance, would be about $3,519 on a $400,000 loan at 7.0%; if the rate were lowered to 6.0%, your payment would then be $3,252, now you're saving $267 per month and $3,204 in annual savings. Consult with your loan officer to see if you can benefit from a rate reduction.
If you plan to only stay in the property for a couple of years, your monthly savings may not accumulate enough to recoup these costs. Consult with your loan officer to calculate your savings and re-coup period.
Generally speaking, refinance transaction costs are less than when you purchase a home. There are still title fees (however, usually they are reduced), an appraisal fee (however, sometimes waived), credit report and possibly a lender admin fee, etc. Everyone's loan scenarios are different so consult your loan officer to see what the overall costs would be when exploring refinancing.
A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying more money up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount. Consult with your loan officer to see if it would be beneficial to pay any discount points.
Generally speaking, we recommend low cost transactions which usually means "no points", however there are times when buying the rate down does make sense. It is all about how long you feel you will remain in that mortgage and it is completely up to you if you want to take advantage of a lesser payment. Those extra costs will be presented to you along with an estimated re-coup period which will help you decide which way is the most beneficial for you.
Mortgage rates change multiple time each day. If you decide to float your rate into underwriting, interest rates could rise during that time which will increase your mortgage payment. It is typically recommended to lock your rate if you are looking to close within 60 days. This is the safe way to proceed with your loan application. You may also have the option to get your rate lowered (after being locked) if the market improves substantially while your loan is in underwriting. This is referred to as a "rate-renegotiation". Consult with your loan officer to see if you qualify for a lower rate prior to closing.
It is typically recommended to lock your rate if you are looking to close within 60 days. This is the safe way to proceed with your loan application. You may also have the option to get your rate lowered (after being locked) if the market improves substantially while your loan is in underwriting. This is referred to as a "rate-renegotiation". Consult with your loan officer to see if you qualify for a lower rate prior to closing.
Even with poor credit getting a home loan is still possible. There are multiple types of loans that offer approvals with lower credit scores. Approvals are based on different elements. Extenuating circumstances and compensating factors can be evaluated and considered. Consult with your loan officer to discuss your credit scenario.
Not necessarily, if you've been late with your payments less than 3-times in the past year, and the payments were no more than 30-days late, you still have a good change at getting a competitive interest rate. Most lenders will accept certain reasons for this like an illness, or job-change, but explanations are required.
Yes, the interest rate is very important. However, not all rates are considered equal. Be sure to look at the cost of the loan as lenders will often advertise lower rates, but those lower rates can come with discount points ("extra fees"), which will require you to come out of pocket with more money at closing. You have to look at the rate and the overall mortgage fees to decide which deal is best for you. Other things to heavily consider are the following:
