reasons why homeowners refinance their home
The #1 reason for refinancing is to get a better mortgage rate and term. But make sure your run the numbers. The cost to refinance and the time period you plan to remain in the home may not benefit you financially if you were to refinance.
Below are six (6) quick summary guides about mortgage and how they work.
To Get a Better Rate
The key reason why home owners refinance their mortgage is to lower their current rate. Your new rate should be 1-2 points lower than your current rate in order to break-even on home refinancing costs.
Also, the length you plan to stay in your home after you refinance should be an additional 5-7 years in order to benefit. If you sell your home before then, you may not break even considering the costs to move and purchase another home.
- origination fees,
- closing costs,
- appraisal fees,
- title and registration fees,
- and other lender fees
Note that many lender are offering "zero cost" refinancing. That means that all costs associated will be paid for by the lender. It makes it easier now to determine whether to refinance or not. If you current rate is 1-point above the refi rate, it could benefit you to refi.
Many of these "zero cost" refinancing come with higher rates. Again, shop around and compare rates and costs.
(note: links to our companion site
To Get Better Repayment Terms
Some homeowners will refinance to lower their repayment terms from 30-year to 15-year or lower. These homeowners may have change in their financial position where they can afford a bigger mortgage payment and wish to reduce their repayment terms.
In this example, the monthly payment will increase, but the homeowner will be able to payoff their mortgage quicker and save thousands in interest.
|Interest Rate (APR):||7.50%||8.00%|
|Number of Payments:||180||360|
|Total Money Spent:||$166, 862||$246,149|
|Total Interest Paid:||$66,862||$164,149|
You might consider our FAST mortgage payoff program
If you looking to refinance your home to reduce the number of repayments, you might consider using our FAST mortgage payoff program.
The program does not require any change in your mortgage or income position. You simple change the way to manage your money to maximize mortgage payoff benefits.
To Get Into a Stable Product
Many homeowners are refinancing to get into a more stable, fixed rate mortgage loan
Homeowners with payment-risk mortgages such as adjustables, interest-only, minimum payments, and other high-risk mortgages will refinance into more stable, fixed-rate mortgage loan.
For Those with Payment-Risk Loans
Homeowners with interest-only loans or minimum payment plans run the risk of negative loan payoff. Refinancing your mortgage can protect your mortgage investment and avoid foreclosure.
View our mortgage loan center for information about payment-risk mortgage
view payment-risk mortgage: interest only
view payment-risk mortgage: minimum payment
view payment-risk mortgage: ARMs
(note: links to our companion site
To Cash Out
Cash-out refinancing simple means you take the equity value in your home and refinance your mortgage up to 80% or lower based on the equity value of your home. The cash difference is then given to the homeowner to be used for any purpose they want.
Example of cash out amounts
If the home mortgage to be refinanced is at $100,000, and the home value is estimated to be $200,000, the homeowner can cash-out up to 80%LTV minus the refinanced amount.
$160,000 ($200,000 X 80%)
minus refi amount ($100,000)
$60,000 is available for cash
You can borrow more than 80% LTV
If the 80%LTV rule doesn't give you enough cash, you can refinanced at 90%LTV and in some cases, 95%LTV. But understand that your total equity value in your home is below the 20% required for home mortgage loans. You will then need to apply for Private Mortgage Insurance (PMI) in order to get cash-out greater than 80%LTV.
Another option to consider is a home equity loan