When you apply for a mortgage refinance, it is very likely that the mortgage lender will ask you to order a property appraisal in order to assess the property value.  This property appraisal will cost you quite some dollars. However, apart from the cost of the property appraisal, there are certain pros and cons associated with it. Let’s take a look at it:

Advantages of property appraisal:

The advantages of property appraisal are as follows:

Avoid PMI: You had to go for a private mortgage insurance or PMI in case you were unable to provide the required down payment while taking out the original loan. While you refinance your mortgage loan, there are chances that you will be required to pay for the PMI too. However, if the property appraisal shows that your property value has increased and that your loan is less than 80% of the home value, then you will be able to avoid the PMI.

Improved chances of loan approval: A property appraisal will make it easier for a homeowner to qualify for a mortgage refinance when he/she does not qualify for a FHA or a VA mortgage. A property appraisal will make it easier for the homeowner to qualify for a normal conventional refinance and take advantage of the lower market rates.

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Refinancing a home mortgage will become quite expensive in the near future due to the credit risk retention rule. Moreover, those homeowners who don’t have substantial equity in their property will have to take a decision even faster. However, it has been said that the rule governing “qualified residential mortgages” is still in fluctuation and may not come into effect until at least a year from now.

What is the Credit risk retention rule?
This is a part of the federal Dodd-Frank Act. Under this rule, it requires the lenders that they securitize mortgages to retain 5% of the credit risk. However, if the mortgage is a “qualified residential mortgage” or otherwise exempt, then this rule won’t apply.

What is qualified residential mortgage (QRM)?
As per the definition of QRM, the homeowners are required to have equity of 25% in their property for a rate-and-term refinance. They should have at least 30% equity for a cash-out refinance. Apart from that, they should meet the other credit-related guidelines as well. It has been estimated that fewer than half of the homeowners in the country have that much equity in their property. However, these loans are expected to be less costly for borrowers because the loans won’t be subject to the risk retention requirement.

Are there any alternatives to QRM?
Those homeowners who have less equity in their property will have to act fast and refinance their homes before the credit risk retention rule becomes effective. But, the rush may turn out to be unnecessary as the QRM rule hasn’t yet been finalized. However, other options to refinance their homes will be available to equity-poor homeowners.

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The U.S. Department of Veteran Affairs has come up with special mortgage programs and refinance deals on Veterans Day. Any veteran can take help from VA mortgage programs more than once in his or her lifetime. Moreover, VA loans are charging low rates at present. It is available at an interest rate of around 4.25% - 4.50%. So, it’s even worth a refinance as well.

The government also prefers giving out VA loans because it has the second-lowest default rate, second only to USDA farm loans.

Positives of VA mortgage:

• Automatic approval: Qualified veterans who wish to refinance a previous VA mortgage will receive automatic approval from the lender if they had made all the payments till date on time.

• Credit score: In order to get a new VA loan or refinance the existing mortgage, the borrowers should have a credit score of around 620 to 640 which is quite low compared to conventional loans.

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You may seek mortgage refinance to pay off an existing mortgage loan. A refinance means new loan terms and conditions, which if is suitable for you, may prove quite beneficial.

Here are the top 3 benefits for which you may seek mortgage refinance:

1. Financial stability: Refinancing will help you reduce your loan term. You may have to pay higher monthly premiums but in return you can pay off your mortgage sooner. You may also have the advantage of paying a lower interest rate than the original mortgage loan that you had. If you have other bills like huge credit card bills to pay, you may use the refinance to pay off these debts so that you can have only your mortgage payment to make each month.
2. Lower rates: If you get a lower rate than what you currently pay on your mortgage, refinance is a very wise thing to do. This way you can lower your monthly mortgage payment. However, you must remember that the interest rates would vary as per the market fluctuations. The decision that you have to make is whether you would like to go for a fixed rate mortgage or an adjustable rate mortgage.
3. Build equity faster: If you are switching from a 30 year mortgage to a 15 or 20 year mortgage, you may build equity quickly and also save money on the financing fees.

If you have good credit score and would like to pay off your loans faster, you may take advantage of these scores to get yourself a mortgage refinance loan with a lower rate of interest. A refinance can be a good way to get better mortgage in future. However, you should weigh your options carefully and consider the advantages and disadvantages of mortgage refinance before you apply for one. Do your research well and only then take the step.

Mortgage interest rates are at record low and you must be planning to refinance your mortgage to take advantage of the low rates. With a good credit score and stable financial situation, you can definitely go ahead and refinance your properties. But again, you should also have a clear idea about the worth of the property. If you do not have equity in the property, lenders won’t refinance your property.

5 Things to keep in mind before you refinance:

• Interest rates: You should refinance your property if it helps you in saving your money. Check out the interest rate on your current loan and compare it with the rate that you would receive after refinancing. This will give you an idea whether you would be saving money or not.

• Refinance Underwater Mortgage: If your mortgage is underwater (i.e. if the worth of the property is lower than the mortgage that you owe), try to assess how far underwater it is. With the introduction of the Home Affordable Refinance program, you may be able to refinance if your loan is not more than the 105% value of the property.

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Mortgage rates are down and long-term mortgage rates are at the lowest level compared to that of the past 4 years. Even short term rates may go down soon. So it is the best time to refinance your mortgage to get a lower interest rate.

However, it actually depends upon the borrowers’ equity that they have, credit score, present loan terms etc. They will have to think whether they can benefit from the refinance even after paying pre-payment penalty and closing costs.

Borrowers having loan amount more than $417,000, will not extract much benefit as interest rates on jumbo loans are still hovering around 6.5 percent. But no doubt rates are down to a great extent. So, if a borrower has only taken the mortgage 2 or 3 years ago with a higher interest rate, they can think of refinancing their mortgages and converting them to 30 year fixed loans with a lower rate.