Determining if a home refinance loan is right can be confusing. That's why we've put together a list of common questions that homeowners have when considering refinancing.
What is Refinancing?
Refinancing is simply getting one loan to pay off another.
What does refinancing cost?
Typically, the closing cost of a refinance is between 1% & 2% of the loan amount, lender fees included. You may choose to pay points (see below) to lower your interest rate, or you could want to do a Low- or No-cost refinance. Contact us if you have any questions or would like to know more.
What are points?
Points (or discount points) are a way of lowering your interest rate. By paying 1% of the total loan amount up-front, a borrower can lower his interest rate by about 1/8%.
How does the APR differ from the interest rate?
The rate refers to what percentage of your loan you will pay in interest per month, whereas the annual percentage rate (APR) is an adjusted percentage that expresses the yearly cost and also includes certain charges and fees.
What are FRM & ARM?
The interest rate of a Fixed-rate Mortgage (FRM) will not change for the life of the loan. Alternatively, an Adjustable-rate Mortgage (ARM) will be subject to periodical interest rate adjustments based on interest rates around the country.
Should I modify my loan or apply for a refinance?
It depends. When you refinance, you may be able to get lower interest rates, but there are additional costs. On the other hand, a loan modification usually means extending the term of the loan and increasing the interest rate, but adding no other fees. Use our free mortgage calculator to compare what each might cost.
What’s the 2% rule? Is it useful?
The 2% rule states that you should aim for a 2% lower interest rate in order to ensure that the savings generated by your new loan will off-set the cost of refinancing, provided you’ve lived in your home for 2 years and plan to stay for at least 2 more.
While this rule is useful as a point of reference, it shouldn’t be adhered to strictly. If you think you will stay in your home for 5 or more years, for example even a 1% interest rate reduction will pay off for you. Additionally, with low- and no-cost refinancing options available, the cost of refinancing can be recovered much more quickly. Talk with us if you’d like to know more.
What is PMI?
PMI stands for Private Mortgage Insurance. Borrowers with less than a 20 percent down payment are required to carry this insurance as a means of protecting the lender against default.
Will I need to get an appraisal when I refinance?
Most of the time, yes. However, there are certain refinance programs where an appraisal is not necessary. Talk with us about particulars.
Does bad credit exclude me from a refinance loan?
Not exactly. When considering a refinance loan it's important to remember that the better your credit score the better interest rate you can get. So if you don't have perfect credit you can still qualify for a refinance loan but you'll want to make sure that you're lowering the interest rate on your loan enough to make a refinance worth it.
Do I need to have equity in my home to refinance?
Yes. The general rule is that you need to have 90% loan-to-value ratio before you can refinance. This means that your home is worth about 10% more than the loan that is current on the house. Additionally, your home will need to have increased in value since you purchased it.
Can I get cash from a refinance loan?
Yes. Depending on the type of refinance loan you opt for you can take out cash to use for bills, home repairs or whatever you might need it for. This option however should be carefully discussed with us. Please contact us today if you're interested in this type of refinance loan.
How long does it take to go through the refinance process?
A typically refinance usually takes between 4 and 6 weeks. Getting your home appraised is usually where most hang-ups occur so if you can schedule a home appraisal right away than getting a refinance loan is usually very quick.