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Determining if a home refinance loan is right can be confusing. That's why Rich has put together a list of common questions that homeowners may 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% - 3% of the loan amount. You may choose to pay points (see below) to lower your interest rate, or you may want to do a Low / No Fee refinance.
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 the 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.
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?
It depends on the loan product you currently have. I can help answer that when you call me!
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 may 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?
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. However, it depends on the loan product you currently have. There is refinancing available that does not require any equity in the home. Call me for details.
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 pay for bills, home repairs or whatever you might need it for. This option, however, should be carefully discussed with me.
Can I "lock-in" an interest rate on a refinance loan?
Yes. Now is the time to refinance because interest rates are so low.
How long does it take to go through the refinance process?
A typically refinance usually takes between 2 and 4 weeks. Getting your home appraised is usually where most hang-ups occur, so if you can schedule a home appraisal right away, getting a refinance loan is usually very quick.
Additional Refinance Information!
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