What are the Benefits of Refinancing?
- Reducing Your Interest Rate
Any reduction in rate at the same term and principal amount can lower your monthly payment. Your REMN Elite Mortgage Loan Originator will be glad to provide you with fees and closing cost estimates and help you weigh the pros and cons of a mortgage refinance.
There are a few ways a refinance can lower your monthly payment:
- Refinance at a lower rate. This lowers the payment if the term remains the same.
- Change the term of your loan. Refinancing a 15-year mortgage to a 30-year loan results in a lower monthly payment because your payments are spread over a longer period of time. However, you will pay more in interest during that longer term. So if your goal is spending less money overall, you may want to shorten a 30-year mortgage to 20 or even 15 years. The monthly payments will be higher, but you will pay less interest over the life of the loan.
- Refinance to an interest only loan. Here, the minimum you must pay is the amount of interest you owe for a certain period of time. You can pay off as much principal as you like above that amount.
- Refinance from an Adjustable Rate Mortgage (ARM) to a Fixed-Rate Mortgage
Mortgage rates have been low for a while, but many experts expect they will begin rising. This means your ARM may adjust to a rate that’s higher than a fixed rate mortgage you could get now.
It is important to consider the amount of time you plan to be in the home. While ARMs make sense if you plan to stay in the home for only a few years, fixed rates mortgages are ideal if you plan to be in the home for more than seven years.
- Refinance from a Fixed-Rate Mortgage to an Adjustable Rate Mortgage (ARM)
The key here is to consider how long you plan on staying in your home. Many people often spend five to seven years in the same house. If that’s not the case for you, it may not make sense to pay the higher interest rate of a 30-year fixed rate mortgage. Instead, refinance with an ARM. You’ll have a lower monthly payment, thanks to a lower rate that you can lock in for a few years before it begins to adjust.
Additional Refinancing Benefits:
You could raise your credit score. If you refinance this could result in lower monthly mortgage payments. Your FICO credit score could qualify you for lower interest rates on everything from credit cards to insurance. So refinancing to lower your mortgage payment could be a way to lower all of your bills at once!
You could eliminate your private mortgage insurance (PMI) payment. Each month, many homeowners pay PMI, which is often required for loans where the down payment was less than 20%. If you’ve paid off enough of the principal that you now owe 80% or less of the value of your home, you may be able to refinance and drop the PMI.
What Mortgage Types are Available?
15-Year Fixed Rate Mortgages offer all the above advantages, plus a lower interest rate. You’re also paying off your mortgage in half the time. Because of this, you’ll have a higher monthly payment. Some borrowers like to take out a 30 year fixed rate mortgage, then voluntarily make larger payments to pay down the loan in 15 years.
Adjustable Rate Mortgages (ARMs) have a rate that is recalculated at the end of a specified time period. The longer you ask the lender to commit to a specific rate, the higher it will be.
- Monthly ARMs reset their interest every month. They usually offer the lowest rate and when rates remain stable, they can be a good choice.
- Annual ARMs recalculate the interest rate once a year.
- Hybrid ARMs offer a fixed interest rate and monthly payment for a specified time, usually three, five or seven years. After that, they become traditional Annual ARMs with a rate that adjusts every year for the remainder of the loan. 3/1, 5/1 and 7/1 ARMs are good choices if you expect to move or refinance in three, five or seven years – before or shortly after the annual rate adjustment begins.
2/1 Buy Down Mortgages let buyers qualify for a loan at below market rates, allowing you to borrow more. Your initial interest rate will increase by 1% after the first year and by another 1% after the second year. It then stays at a fixed rate for the remainder of the loan. Borrowers often refinance these loans at the end of the second year at the best long-term rates. Leaving the loan in place for three full years or more will generally keep its average interest rate in line with original market conditions.
Reverse Mortgages allow homeowners aged 62 and above to convert part of their home equity into tax-free income* without selling the home, giving up title to it or making monthly mortgage payments. The loan becomes due only when the last borrower permanently leaves the home. *Please consult a tax advisor.”
FHA & Conventional Loans
FHA Mortgages have lower down payment requirements that may be easier to qualify for than a conventional loan. The loans are made by private lenders and insured by the FHA, with both an upfront and a monthly charge for this insurance.
FHA 203(k) Mortgages are available to help homebuyers purchase a home in need of updating or improvements. The lender loans money to buy a home AND complete repairs in a single mortgage. This rehab loan offers fixed rates with only a 3.5% down payment required. The home must be your primary residence. The FHA 203(k) is also available for refinance transactions.
FHA Energy Efficient Mortgages (EEM) are available to assist homeowners and homebuyers with energy upgrades that are financed into their mortgage loan. The FHA EEM Program will add value to your home while reducing utility expenses without effecting qualification or having to provide additional down payment. This program is available for FHA Purchase and Refinance loans.
VA Mortgages are made by private lenders and guaranteed by the Department of Veterans Affairs (VA). The VA guarantee lets veterans and active service personnel get a home loan for up to 100% of the home’s value with no down payment. It’s typically easier to qualify for a VA loan than for a conventional one, but there’s usually a maximum loan limit of $417,000.
USDA Mortgages are for rural properties and are guaranteed by the Department of Agriculture. Benefits include financing up to 100% of the purchase price and no monthly mortgage insurance premium.
Conforming Mortgages offer lower rates because they are loan to guidelines established by Fannie Mae or Freddie Mac, which Government Sponsored Enterprises (GSEs). These loans must also “conform” to established maximum loan limits set by Fannie Mae and Freddie Mac.
Non-Conforming Jumbo Mortgages carry higher interest rates because they are above the established Fannie Mae and Freddie Mac maximum loan limits.”
What are the Basic Steps to a Home Purchase?
- Contact us to determine which type of mortgage is best for you.
- Create a monthly budget to determine the monthly payment you can afford.
- Check your credit report – get your score and make sure the information is accurate.
- Make a list of the “have-to-haves” versus the “nice-to-haves” in your new home.
- Choose a reputable Realtor in your buying area and see as many homes as you can.
- Choose a home, based on your “needs and wants” list and your pre-approved loan amount.
- Submit an offer through your Realtor.
- Submit a purchase and sale agreement through your Realtor along with a deposit (also known as earnest money).
- Get a professional home inspection.
- Have a trusted agency process and underwrite your loan to secure a loan approval.
- Obtain evidence of Home Owners Insurance and an acceptable Title Commitment.
- Schedule your mortgage closing date.
- Go to the closing.
- Enjoy your new home.