Refinance Options to Consider
A cash-out refinance allows you to take cash out based on the equity built into the home. With a cash-out refinance, you take out a loan larger than the amount you still owe, or you refinance for a higher loan amount. Then, you receive a portion of your home’s gained value in cash, tax-free. This is a popular choice for homeowners looking to pay off other high-interest debts. Some choose to use that cash towards funding home improvements, weddings, college tuition, or whatever purchase requires a considerable chunk of change. A cash-out refinance typically comes with a lower interest rate than consumer debts, which makes it a great option for debt consolidation, especially since the tax on mortgage interest is tax-deductible, while interest on other debts usually is not.
Lower Monthly Payment
There are several monthly costs that can be refinanced. This can result in an overall lower mortgage payment, giving you the opportunity to more easily budget for other things. Refinancing into a loan with a lower rate means big savings on interest in the long run. Getting rid of private mortgage insurance (PMI) is another way a refinance loan can save you money from month to month. The PMI usually tacks on an additional 3%–5% monthly fee for homeowners who were unable to put down at least 20% on a home at the time of purchase. One choice to be made is between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). Homeowners looking to be protected from fluctuating market conditions may opt for a fixed-rate mortgage.
Changed Mortgage Term
Refinancing from a 15-year mortgage term to a 30-year mortgage term stretches out payments, making each monthly payment smaller. However, paying a loan over a longer period of time also means paying more in interest over the life of the loan. Conversely, a cash-in refinance has the opposite effect, so monthly payments will increase to allow homeowners to more aggressively pay off their loans. This option is appealing if you want to pay off your loan earlier and save in the long run on interest rates. Other shorter-term mortgages also tend to offer lower interest rates, allowing for a larger amount of principal to be repaid with each mortgage payment.
What is your goal?
If you’re considering refinancing, you should start by asking yourself, “What is my goal?”
- Are you looking to lower your rate?
- Would you like to shorten your loan term?
- Are you looking for a lower payment?
- Are you looking to consolidate debt?
- Are you looking to pull cash out from your home?
- Do you have a second mortgage that you would like to combine with your first mortgage?
- Are you looking to get out of an adjustable rate and into a fixed rate loan?
- Do you need to remove someone from your current loan?
Lower Your Rate
Reducing your interest rate can save you a lot of money in the long term while also lowering your monthly payment.
Shorten Your Loan Term
Shortening your loan term allows you to speed up the rate at which you build equity. That means saying goodbye to years of payments!
Lower Monthly Payments
Who doesn’t want a lower monthly payment? Lowering your payment can save you thousands over the life of your loan.
Refinance Steps to Follow
Once you’ve decided what kind of refinance is right for you, be sure to choose a trustworthy lender that can make the refinance process as hassle-free as possible. Ask up front about availability, who services the loan, and rates and fees. It’s also a good idea to check for evidence of customer satisfaction. Plus, you’ll also want to know what kind of timeline to expect when it comes to closing on your loan.
Refinance Documents to Prepare Application
Important documents to have on hand for your lender are:
- Your two most recent pay stubs
- Your two most recent W-2s
- The most recent two months of bank statements
If your spouse or someone else will be on the loan with you, they’ll need to provide these documents, too (so your lender can get the whole picture of your financial situation). Also, self-employed homeowners will need to provide a few more documents to demonstrate income. For example, your entire tax return may be required to determine the exact amount of cash in and cash out.
Refinance Application, Underwriting and Appraisal
After gathering documentation, you will need to apply for the loan through your lender. Your lender will use an underwriter to check that all of the details on the mortgage application and supporting documentation are accurate and fulfill the necessary guidelines. The loan is only secured once the application is accepted by your lender, your appraiser provides an evaluation of the property’s value, and the investor of your loan (the institution that gives your lender the funds for your mortgage) approves. This part of the process typically takes one to two weeks.
Once your mortgage application has been approved, you’ll have the option to lock in a mortgage rate for 30 to 60 days. While that should get you to closing, there is the possibility to extend the lock-in period should the closing date be delayed.
Anyone who will be on the refinance loan should be at the closing. The closing may also be attended on the loan signator’s behalf by someone who is granted power of attorney. Additionally, it is typical to expect a representative from the title company to be at closing (some states require a witness to be present as well). However, these days, closings commonly happen virtually.
The following are typically necessary at the closing:
- Identification such as a driver’s license, government-issued photo ID, or passport
- A cashier’s check to cover your closing costs (if applicable)
- Your Closing Disclosure to double-check the final paperwork
- A list of key contacts, like your agent or lawyer, in case any questions come up.
Keep in mind the costs and fees associated with a loan refinance:
- Application Fee. This fee will be due even if your loan is denied.
- Appraisal Fee: You will need to get a professional appraisal of your home to determine the home’s value for your lender. Some refinance options, like a streamline refinance, may be eligible to get the appraisal waived.
- Inspection Fee: Certain inspections may be required based on the type of loan you’re getting.
- Attorney Review and Closing Fee: This fee covers the costs of the lawyer who conducts the closing for the lender.
- Title Search and Insurance: A title search is conducted to ensure there are no liens on a home and that a borrower is the rightful homeowner. Title insurance is a one-time cost that protects the borrower and the lender against any problems with the title that were caused by a previous property owner.
What Customers Say About The Home Loan Expert
Refinance with The Home Loan Expert
There are advantages to both types of refinances, and the better option will depend on your unique needs. And if you’re struggling to decide, our Experts can weigh in and help!
The Home Loan Expert’s passionate and driven loan officers are trained to reflect our commitment to staying in touch with the needs of those we serve. Our face-to-face personalized approach provided by our friendly lending experts is the backbone of our company. Today, The Home Loan Expert serves homeowners across the country to get them the best deals possible. With streamlined services, we also offer a hassle-free experience with fast closing times. And if you’re considering a refinance, you should know that all refinances done with us mean that you could take 2 full months off from making payments.
Give us a call today to speak with one of our friendly lending Experts, to find out how we can help you find a refinance loan that’s right for you.