Refinancing can be a significant financial decision, offering the opportunity to potentially save money, reduce payments, or even tap into home equity. However, before diving into the process, it’s crucial to understand various factors involved so you can make informed choices, determine which home solution best meets your needs, and maximize the potential benefits of refinancing your mortgage. Let’s explore ten key things you need to know.
To determine which financing options are best suited for you, you need to determine what your goals are. Are you looking to own your home sooner? Maybe you need affordable financing for home repairs or you’re looking for a way to free up cash every month. With countless options, it’s important to have a clear vision and goal before you can move forward.
With a cash out refinance you can use your home equity to get cash back. You receive the money almost immediately and can use it any way you want. Whether it’s to pay off high interest credit cards, home improvements, pay off your car loan, or invest in your future, you decide how you will spend the money. Cash out refinancing is one of the most affordable ways to get financing needed to meet your goals.
Refinancing may allow you to shorten the length of your remaining loan term. Typically, reducing the repayment period means less total interest paid because you’re paying interest for a shorter period. Keep in mind while the total interest paid over the life of the loan will be less, it doesn’t necessarily mean the interest rate will be lower. But it can still result in significant savings.
Refinancing at the right time, like when interest rates drop lower than your current mortgage interest rate, can put you in the position to benefit from a mortgage refinance with lower monthly and annual payment options. Even if interest rates haven't fallen since you took out your mortgage, you may still be able to get a lower monthly payment by refinancing into a loan with a different payment schedule.
If your home value has increased enough since you took out your mortgage, you may be able to refinance into a new loan with a lower loan-to-value ratio (LTV). This means that your new mortgage balance will be less than 80% of your home's value, which will allow you to cancel PMI.
To qualify for a refinance to remove PMI, you will need to have at least 20% equity in your home. You will also need to have a good credit score and be able to afford the higher monthly payments that may come with a new loan.
Current market conditions are a primary factor, but there are other influences that determine what rate you may qualify for, such as credit score, late payments, the length of your credit history/inquiries and your new mortgage type.
Before refinancing, you’ll need to reach out to your lender to find out the payoff amount on your existing mortgage to determine how much you will need to borrow for your new loan. You can also ask whether your current lender charges any prepayment fees or penalties for paying off your current mortgage early.
There are several options available when refinancing your home, ranging from loans that give you a more stable interest rate to those that help consolidate your debt. Work with your lender to determine what loan works best for you. PHH offers Conventional, FHA and VA loans with multiple term options.
In addition to the closing costs associated with any new loan, there are also specific costs associated with refinancing, such as appraisal fees, title insurance, and origination fees. These costs can vary depending on the lender and the terms of your new loan. Your loan officer will be able to provide more detailed estimates.
By law, you have three business days after you sign your loan contract to cancel the loan for any reason. For this same reason, you do not receive any money until three days after signing the contract. This applies to primary residences only.
1 By refinancing your existing loan, your total finance charge may be higher over the life of the loan.