Details About My Mortgage Refinancing Process
Which refinancing option is best for you?
For many of our clients, it seems like there are more loan programs than people to qualify for them. We’ll work with you to qualify you for the loan program that best fits your needs. Keep the following general considerations in mind:
Are you refinancing primarily to lower your rate and monthly payments? If you have a fixed-rate mortgage with a higher rate or an ARM (Adjustable Rate Mortgage) where the interest rate varies, your best option may be a low fixed-rate loan. Unlike your ARM, when you qualify for a fixed-rate mortgage, you lock that low rate in for the life of your loan. If you don’t think you’ll be moving within the next five years, a fixed-rate mortgage may be your best option. However, if there is a chance that you may move in that timeframe, an ARM with a low initial rate might be the best way to lower your monthly payment.
Are you refinancing primarily to cash out some home equity? Are you looking for some cash to pay for home improvements, pay your child’s college tuition bill, or take your dream vacation? If so, you may want to qualify for a loan for more than the balance remaining on your current mortgage. If you’ve had your current mortgage for a number of years and/or have a mortgage with a higher interest rate, you may be able to do this without increasing your monthly payment.
Would you like to cash out some equity to consolidate other debt? Good idea! If you have the equity in your home to make it work, paying off other debt with higher interest rates than the interest rate on your mortgage — for example, credit cards, home equity loans, car loans, some student loans — means you can save possibly hundreds of dollars a month.
Do you want to build up home equity more quickly, and pay off your mortgage sooner? Consider refinancing with a shorter-term loan, such as a 15-yr mortgage. Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and build up equity more quickly. If you’ve had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment; you may even be able to save!
For example, let’s say that years ago, you took out a $150,000, 30-year mortgage at eight percent. Your payment is about $1,100, exclusive of taxes, insurance, and so on. If your balance today is down to $130,000, you might take out a 15-yr mortgage at six percent and have an almost identical monthly payment! This is a great option for people whose main goal is not to save on their monthly payment, but instead to build up equity and pay off their home quickly.