Are you looking forward to get extra cash, save more and pay off all your debts? Or, do you wish to replace your current mortgage with a new loan having more favorable loan terms. There's a way out by which you can fulfill all such needs - a process called refinance (or refinancing). It gives you the chance to pay down your current home loan from the funds offered in a new loan against the same property as the collateral.
For example: Mr. X and Mr. Y both took a mortgage loan worth $400,000. After 4 years, both of them paid off $200,000. Mr. X then took another home loan worth $200,000 in order to repay the existing balance on the loan.
On the other hand, Mr. Y opted for a second home loan worth $300,000 in order to repay the unpaid loan balance which is $200,000. Mr. Y could use the remaining balance in order to fulfill other financial obligations.
The first case is regarded as mortgage refinancing and the second where the new loan amount is higher than that of the existing loan balance, is a cash-out refinancing.
6 Reasons for you to Refinance
You want to save more
Reduce monthly payments by getting a lower mortgage rate or a longer loan term. In the second case, your monthly savings increase but you will be paying a larger amount of interest for the life of the loan.
You want to pay down your mortgage quickly
Shorten the length of your mortgage by reducing the period of repayment. Monthly payments will no doubt go up, but you will be able to save more in the overall interest payment. Moreover, it will allow you to get home ownership in a short time.
You need extra cash
Borrow more than the unpaid loan balance if you have enough home equity. With the extra cash, you can pay off high interest debts such as credit card balances or installment loans. You gain out of it as the interest on these debts are not-tax deductible unlike the mortgage interest.
You wish to pay off a high interest second mortgage
If there's enough equity at your home, you can refinance your second mortgage and combine both the loans into a single loan. The monthly payment on the new loan is likely to be lower than the combined payments on the first and second mortgages.
You want to convert from an ARM to an FRM
This allows you to lock in at a low rate. You can thus repay the loan with stable monthly payments rather than variable payments throughout the life of the loan.
You want to get rid off PMI
If your current loan balance is below 80% of the new appraised value of your home, you can refinance and stop paying PMI.
When to refinance your current loan
Refinancing can be a way out to keep you from making higher payments but you can only get the maximum benefits when you're into the process at the right time. Here are a few conditions under which you may seek a refinance loan.
- You have the home equity to help you borrow
It is feasible to can go for a refinance when you have built up at least 10% equity in your home (For Fannie Mae owned mortgages, the value is 5%). It is also possible for you to choose the option if your equity is less than 5%, but you may have to pay a certain amount of cash in order to make up for the difference in the equity.
- You find that current market rates are low
It's better to follow the 2% Rule which suggests that you can enjoy the benefits of a refinance if you can secure an interest rate 2% below the rate on your current loan. The interest savings will help you to recoup the costs you've paid for the new loan provided you stay in the property for a certain period of time (break-even period).
However, there are no-cost as well as low-cost refinance loans wherein the costs are included into the loan. You can expect a slightly higher rate on such a loan but if it's lower than your current rate, then it's still a suitable choice.
- You haven't been late on the payments
There is no such limit on the number of times you can go for a refinance. Most lenders prefer that you have no late payment for the past 12 months before you switch over to a new loan.
When not to refinance
Refinancing does not make sense under the following situations: - Your property value has gone down
If your property value reduces and you refinance up to 80% of the reappraised value, your original mortgage amount may be higher than this amount. Thus, the new loan will not be sufficient enough to help you pay down the existing one.
- You are paying off the first loan for a long time
If you are making payments on a long term loan, say, a 30 year mortgage for the past 10 to 20 years, then refinancing to another 30 year loan will not be a good option as it may increase your overall payment.
- Your credit profile isn't impressive
If you have messed up with your credit by delaying payment on loans and bills, there is hardly any chance that you will qualify for a low rate mortgage. Off course there are lenders in the subprime market, but it's better to avoid them as they'll possible charge you with higher rates and fees.
- You have used up enough equity in your home
Refinancing may not be that useful if you have already used up 90% or more of your home value in taking out a mortgage or any home equity loan. You won't be able to get the best rates available in the market as when you refinance a 90% LTV loan, you will probably require a loan of that value or higher. This will be quite closer to being a 100% financing option and hence the rates will be comparatively higher.
- You have a few years left on the current loan
If there is only a few years left on your current loan, then there's not much use refinancing it with a long term loan. You may need extra cash but with a long term loan, you may end up paying more throughout the loan period. In this case, if you do not move according to a planned budget then it will be hard to carry out your day to day expenses.
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Caron
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Joined: 19 Jul 2005
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 Posted: Wed Dec 14, 2005 9:51 pm Post subject: Pay Option ARM dominates the California Refinance Market |
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A large number of borrowers in the California mortgage industry seem to refinance their mortgages using a Pay Option adjustable rate mortgage (ARM). With this kind of an ARM you can get full control over your monthly mortgage payments.
The Pay Option ARM provides you with the choice to make low monthly-deferred interest payments or an interest-only option along with the 15 year amortized payment and 30 year amortized payment options. It benefits all kinds of borrowers, especially self-employed or commissioned borrowers and those who are in such a financial position that does not allow them to go after huge payments. The program is specially meant for those who have fluctuating income and can support high payments on a monthly basis.
The California refinance Pay Option ARM is such that the monthly payments cannot increase more than 7.5% above the previous year for the initial 5 years of the loan period. There is also the option to convert into a fixed rate mortgage after the first 3 years.
With this kind of a refinance loan, you get the chance to make fully amortized payments when you are financially strong and then shift to the low deferred interest payment scheme if required. You get the flexibility to make payments depending upon your monthly cash flow. And, in case you are a first time buyer or looking for a new home, then this can be the best option to fulfill your dreams with the lowest payment possible. |
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helping_user
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| Posted: Fri Jan 06, 2006 12:28 am Post subject: Discount Points in refinance |
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You can refinance your existing mortgage loan with some discount points to get a lower interest rate. A portion of the loan paid should be deductible on that financial year and the balance must be deducted or amortized throughout the loan period.
For example, Kathleen has a mortgage loan balance of $60,000. She decides to refinance the original loan borrowing $80, 000 so that she has an additional $20,000 to conduct repair work on her principal residence. She paid $3,000 in points.
Since, she actually paid the points so she will be allowed to deduct 25% of the total points (i.e, 25% of $3,000 = $ 750) in the year and the remaining $2,250 in points would be deducted (amortized) over the life of the loan. |
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Elizabeth Lennox
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| Posted: Sat Jan 28, 2006 7:50 am Post subject: reverse mortgage for disabled 52 year old? |
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| Is there a program for a 52 year old permanently disabled single parent as of Dec 1999? I am prevented from making additional money to continue making my monthly payment to Colorado Housing and Finance Authority as a hardship loan due to multiple operations. I have lived here 24 years. I have considered refinance wih CHFA but concerned they might say no and request sign off of my loan because my financial income has recently changed due to the operations and inability to earn more money as the loan was originally set up with. Reverse mortgage or any similar program for "non senior" but permanently disabled would help. |
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Jessica
Mortgage Mentor
Joined: 08 Jun 2004
Posts: 606
Location: OHIO
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| Posted: Mon Jan 30, 2006 8:45 pm Post subject: RE: |
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Hi Elizabeth,
Welcome to the forums.
Let me tell you that a reverse mortgage is not generally offered to those below 62 years of age. We can obviously try and help you regarding any other loan program. But for that please request for quote with us and let us know about your loan requirements so that we can forward all the details to the Customer Care Department. They will do their level best to help you and contact you as soon as possible.
Regards,
Jessica. |
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heggelund
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| Posted: Mon Jun 18, 2007 5:18 pm Post subject: |
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| how does the CHFA's statewide Hardship Refinance program work thanks |
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colin
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Joined: 30 Jun 2006
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| Posted: Mon Jun 18, 2007 5:26 pm Post subject: |
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Hi Heggelund,
Welcome to Mortgagefit forum.
Colorado Housing and Finance Authority (CHFA) has a statewide Hardship Refinance program which is used to provide financial assistance to borrowers facing foreclosure due to unforeseen & temporary financial crisis. It provides opportunity of paying off the existing delinquent mortgage and start a new 30 year mortgage.
Please go through this page to know more about the eligibility requirements to qualify for this loan as well as the procedure to apply - http://www.colohfa.org/documents/hf_hardship_factsht.pdf
Colin |
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Knauss
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| Posted: Tue Jul 10, 2007 5:58 pm Post subject: |
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| what are the conditions/requirements for streamline refinance of fha loans and can a streamline refinance possible without going for a appraisal? |
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miller_st
Joined: 17 Jan 2007
Posts: 917
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| Posted: Tue Jul 10, 2007 6:15 pm Post subject: |
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Hi Knauss,
A streamline refinance would be possible if the mortgage is a fha insured mortgage and is not in default plus the refinance is to result in lowering your monthly mortgage payments. Another thing is that it cannot be a cash out refinance.
Second thing you asked is about appraisal. Yes streamline refinance is possible without appraisal but one condition should be met. The condition is that the new loan amount cannot be more than the original principal amount. If you are going to refinance for the same amount then appraisal will not be required.
Miller |
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pan_kul
Joined: 13 Mar 2007
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Rundgren
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| Posted: Wed Jul 25, 2007 5:55 pm Post subject: |
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| If I were to refinance my condo and know that HOA is presently in litigation with developer. is it possible that I would be able to refinance my present mortgage? |
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blue
Joined: 21 Oct 2005
Posts: 1135
Location: MARYLAND
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| Posted: Wed Jul 25, 2007 6:07 pm Post subject: |
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Hi Rundgren,
Welcome to Mortgagefit discussion board.
Homeowner's Association can be venerable to legal action if it does not act on genuine problems in the building & disclose them to all unit owners.
Your chances to obtain financing can be affected by the fact that association is suing the developer. But you should inform your lender beforehand if development is in litigation.
Usually, obtaining finance is possible in such situations but the number of lenders willing to provide finance would be limited. Some lenders can ask for higher interest rate than normal and require higher equity percentage.
Do let me know if you have any other questions.
Thanks
Blue
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james the retard
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| Posted: Sun Jul 29, 2007 1:26 am Post subject: quit claim deed |
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| me and my wife want to divorce , if she quit claims the house to me does that release her from that debt and would i have too refinance |
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helping_user
Joined: 31 Mar 2006
Posts: 661
Location: Hawaii
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| Posted: Mon Jul 30, 2007 2:48 am Post subject: |
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Hi James,
If your wife quit claims the house to you that means she is quitting her interest from that house. If her name is not on the loan, then you are completely free the refinance the existing mortgage after quit claim process will complete.
Thanks |
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Niicss
Joined: 03 Oct 2005
Posts: 631
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| Posted: Tue Jul 31, 2007 12:40 pm Post subject: |
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| Quote: | | me and my wife want to divorce , if she quit claims the house to me does that release her from that debt and would i have too refinance |
If she is on the loan then a quit claim deed will not release her from mortgage responsibility.
She will remain on the loan.
And as title ownership will change because of the quit claim deed the lender would require you to refinance the mortgage in your name.
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