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Refinance a mortgage at the right time and for right reasons.

Are you burdened with rising monthly payments and seeking better terms and conditions on your mortgage? Or, are you looking to consolidate your unpaid debts and get rid of them faster? All these mortgage scenarios and many more can be accomplished by mortgage refinancing. To get the basic idea on refinancing, go through these topics:

Do it yourself!



What is mortgage refinance?

With mortgage refinancing, you can replace your original mortgage with a new one with better terms and conditions but the new mortgage should be within your affordable limit. The same property that you used as collateral to secure the original mortgage is used to secure the new loan also. The new loan proceeds are utilized to pay off the existing mortgage. In case there is any remaining money after paying down the original mortgage, that amount can be used to meet other financial obligations.

Example: Suppose each of the two borrowers A and B took out mortgage loan worth of $500,000. Again, say after 5 years, both A and B paid down $250,000. So, for both these borrowers, remaining unpaid mortgage amount is $250,000.

Borrower A then took out another loan worth of $250,000, so as to repay the remaining balance on the existing mortgage. This depicts a case of simple refinance.

Borrower B then took out another loan worth of $350,000. Out of this new loan amount, B used $250,000 to pay down the original mortgage. B could use the remaining $100,000 to meet other financial obligations. This describes a case of cash out refinance.

The first scenario is a simple refinance while the second is that of a "cash-out refinance".


5 Reasons that make refinancing sensible

There are some strong reasons which make mortgage refinance a very sensible move. Here we delve upon 5 of those -
  • To reduce monthly payment:
    If the mortgage rate is lowered or if the mortgage term is extended, your monthly payment amount gets reduced. With reduced monthly payment, you can pay off your mortgage with more ease. In case the term of the loan is extended, you have to however pay more in interest during the whole life of the loan.
  • To switch from ARM to FRM:
    Fixed rate mortgage (FRM) offers you the certainty of making fixed payment over the term of the loan. Whereas, in case of adjustable rate mortgage (ARM), the monthly payment amount may rise or fall, depending upon the prevailing mortgage rate. So, in case of ARM, the monthly payment amount is not fixed; rather it is uncertain. If you are looking for certainty in payments, then you can convert your existing ARM to an FRM through mortgage refinance.
  • To repay mortgage faster:
    If you want to pay down the mortgage early, then you can shorten the term of the loan. However, here your monthly payment amount increases. Here, over the term of the loan, you save more in interest payments. You also attain property ownership early.
  • To combine two loans into one:
    If you have adequate equity in your property, you can then consolidate your first mortgage and the second mortgage into a single mortgage. The main advantage of this type of consolidation is that the monthly payment on the single loan is less than the combined payments on the 1st mortgage and the 2nd mortgage.
  • To pay off high interest debts:
    If you have sufficient equity in your home, you can opt for a cash out refinance. You can use the remaining money to pay high interest debts such as credit card bills, car loans, installment loans etc.


What is the best time to refinance?

You may not always be eligible for refinancing or the situation may not always be conducive for refinancing. You have to time your move correctly so as to reap its benefits. You need to check out these crucial things carefully before applying for mortgage refinancing -
  • If you have built up equity:
    You may be eligible for refinancing when you have built up equity of at least 10% in your home. However, for mortgages owned by Fannie Mae, the equity requirement is 5%. It is possible to get the refinance approval even with less than 5% equity, but in that case you may have to pay a certain sum of money to compensate for the deficiency in equity.
  • If the refinance rate is sufficiently low:
    If the current mortgage rate is sufficiently lower than the rate on the original mortgage, then it may be wise to opt for refinancing. Here, you need to follow the 2% Rule. As per the 2% Rule, refinancing is beneficial for you in case the refinance rate is 2% lower than the rate on the original loan. Here, the savings accrued from low rate outweigh the costs of the new loan after a certain period of time, which is called the break-even period. To get benefits of refinance, you have to stay in the house at least till the break-even period.
  • If you have removed negative items and paid off debts:
    Before plunging into refinancing, obtain your credit report from the credit bureaus and review it carefully. If you find some negative items such as collections or late payments, dispute those items immediately and get those items removed from your report. Prior to refinancing, pay down as much debts as possible. All these will work in your favor in getting the refinance approval.
  • If you have no late payments in past 1 year:
    If you have history of late payments in the past 1 year, then your refinance appeal may be rejected. So, before refinancing, make sure you don't have any late payments in the past 1 year.


When refinancing is not a good idea?

Despite the fact that refinance has several benefits, it is not always a good idea to go for mortgage refinancing. There are some cases when your refinance appeal is rejected by the lender or it may not fetch the desired returns. Here are some cases when refinancing is not a good idea at all-
  • If the property value has declined sharply:
    If the value of your property has declined appreciably, the remaining balance on your original loan may be higher than the refinance loan amount. In other words, with the new loan proceeds, you won't be able to pay down the original mortgage loan.
  • If you have already used up your equity:
    Your equity is the key to get approved for refinancing. If you have already used up your equity by taking out a home equity loan (HEL) or a home equity line of credit (HELOC), then going for refinancing would not be a good idea.
  • If you have only a few years left on the existing loan:
    It does not make good sense to go for refinancing if you have only a few years left on your existing loan. It is not rational to refinance the loan which you have almost paid off. If you have almost paid down a 30-year fixed rate mortgage, then it is unwise to opt for refinancing. After all, refinancing is just like taking out a new loan and all the costs associated with taking out a fresh loan are applicable here too.
If you have the right reasons and if the time is right, then you can surely seek for mortgage refinance. However, before making the final decision, do the necessary research, take quotes from different lenders, make a comparative analysis and choose your lender.
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Refinance a mortgage at the right time and for right reasons.
Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My son quit-claimed a house to me 2 years ago. I am attempting to re-finance the house after making mortgage payments for two years; however, the mortgage company (not the one that holds the mortgage on the house) wants to see my name on the mortgage or year-end interest statements before they’ll go ahead with the re-fi. Currently only my son’s name is listed. Any suggestions?

[size=9:e2a16f31d9][color=Red:e2a16f31d9][E-mail address deleted as per forum rules. Thanks.][/color:e2a16f31d9][/size:e2a16f31d9]

Like | Dislike | Share | Posted: Sat, 08/08/2009 - 15:29 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

sherry i think the issue the bank has raised is that you cannot document having made payments for the previous two years. ask them if that's what they're looking for, and if you can provide bank statements to show your having made payments, you ought to be good.

you can also move on and begin doing business with someone else who might be more amenable to your circumstances.

Like | Dislike | Share | Posted: Mon, 08/10/2009 - 07:54 | Post subject:

smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi davemarius!

Welcome to forums!

You will have to contact your local lenders in order to refinance your mortgage. You should have equity in your property and your credit scores should be good enough in order to get a mortgage refinance.

Feel free to ask if you've further queries.

Sussane

Like | Dislike | Share | Posted: Fri, 03/25/2011 - 23:49 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am the owner of a single family rental property in Smyrna, GA. I am trying to find an option for refinancing the property, but can only find a lender willing to do 75% LTV. Are there any other options for folks with exceptional credit (750+) and a high income? I simply don't want to tie up liquid cash in this place, but I can't sell it now, due to the economy.

Thanks!

Like | Dislike | Share | Posted: Sat, 08/15/2009 - 02:44 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

GA you may find a not-so-conventional lender to do what you wish, but my suspicion is that you'll not like the interest rate they'll charge you.

investment properties are one of the least favorite property types for every conventional lender in this country. that's why you need to go "outside the box" to find someone willing to grant you a benefit.

one other option (perhaps) - try a local bank that tends to keep its loans in portfolio, or a credit union in the area. in either case, they may have the flexibility that you're looking for and still grant a decent interest rate.

Like | Dislike | Share | Posted: Sat, 08/15/2009 - 06:28 | Post subject:

Jimmymackin's picture
Jimmymackin | Joined: August 17, 2009 11:59 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If you own a primary residence that has equity, perhaps you could draw 75% off of the rental and come to the with the remainder from your Primary home's equity to free up some cash.....

Otherwise I would try George's option of going through a local bank

Like | Dislike | Share | Posted: Mon, 08/17/2009 - 16:34 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We have been interested in refinancing our current mortgage loan. Just wanted to find out information without having someone to push you into signing the loan. What is the difference with a mainstream loan and a refinance mortgage loan. How would you know what is the best way to go.

Like | Dislike | Share | Posted: Tue, 08/18/2009 - 07:49 | Post subject:

Jimmymackin's picture
Jimmymackin | Joined: August 17, 2009 11:59 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Could you clarify the question? I am not familiar with the term "Mainstream loan"

Like | Dislike | Share | Posted: Tue, 08/18/2009 - 08:00 | Post subject:

adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hey shyone,

Even I'm not familiar with mainstream loan. As far as refinance is concerned, it is a new loan with better terms and conditions which helps you in replacing your current loan.

Like | Dislike | Share | Posted: Tue, 08/18/2009 - 20:53 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

can I refinance by putting my loan into someone else's name?

Like | Dislike | Share | Posted: Thu, 08/20/2009 - 19:27 | Post subject:

adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest,

You cannot refinance the loan in any other person's name. The other person will have to refinance the loan in his/her name.

Like | Dislike | Share | Posted: Thu, 08/20/2009 - 20:13 | Post subject:

bensonclive's picture
bensonclive | Joined: August 16, 2009 12:53 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

someone,

Refinance stands for the lowering the interest and fees attached with your existing loan.Even if you pass the money to someone but on records you still owe the money to the bank and thus you can only refinance the loan on your name only.

If you are facing the problem in a hard way, with the consent of all the people (you, lender and new co-borrower)you can alter the terms of the loans and thus can add one more co-borrower on the loan so it will be lot more easier for you to repay the loan.

This is really a vible solution to the problem, if your lender agrees to do this.

Like | Dislike | Share | Posted: Mon, 08/24/2009 - 21:01 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

have about 50,000 in credit card debt. have a morgage on our 10 year old home of 79,000. can we refinance and include the credit card debt into the morgage?

Like | Dislike | Share | Posted: Mon, 08/31/2009 - 14:45 | Post subject:

jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi picturethis,

Credit card debts are unsecured debts. You cannot include it in your mortgage. However, you can refinance your mortgage and can use the extra cash to pay off the credit card debts.

Thanks

Like | Dislike | Share | Posted: Mon, 08/31/2009 - 23:47 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

james i think that's what picturethis was driving at, actually. and i agree that as long as there is sufficient equity in the home to borrow that much, the cards can be paid in full with the mortgage proceeds.

Like | Dislike | Share | Posted: Tue, 09/01/2009 - 11:05 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

NYSE dove 138 points yesterday. I worry by next week it will drop another 500! That is shitty.. I am already on my way to being deep in debt.. anyone know a good market to be in?

Like | Dislike | Share | Posted: Wed, 03/30/2011 - 22:20 | Post subject:

fredwaltz's picture
fredwaltz | Joined: August 17, 2009 05:27 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

it is better if you can pull out any line of credit on your house (provided you have sufficient equity) so in this way you can payoff the $ 50 k debt on your card and it will be lot more cheaper.

Like | Dislike | Share | Posted: Tue, 09/01/2009 - 22:02 | Post subject:

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