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Refinancing FAQ and Information
Refinancing FAQ: Answers for Your Mortgage Refinance
Thinking about refinancing your mortgage, but have a ton of questions? Checkout this FAQ section to find common questions, answers, and useful information.
What is refinancing and how does it help?
Refinancing is when you get a new home loan to replace the one that you currently have to benefit from a fixed rate, a lower rate, better terms, cash to consolidate bills or all of the above. It should save you money both in the long run and in your monthly payments. When you refinance a loan, you are actually paying off the original loan with the new loan, so it is important to remember that there may be fees or penalties for paying off the original loan before the term has ended. This is called a pre-payment penalty and you’ll want to look out for one on your existing loan.
How can refinancing lower my mortgage payments?
A home loan refinance can save you money in a few different ways. Most people refinance their mortgages to get a lower rate or change the terms of the loan. The new lower rate or longer loan term (or both) can reduce your monthly payments. However, you always need to take into account the fees associated with getting a new loan, such as closing costs or penalties from your original loan. If those fees turn out to be substantial, it can end up counteracting the monthly savings you receive. The best way to figure out if you’re better off paying fees upfront, is to compare the total of those fees against the savings you’ll achieve from the lower monthly payments. A good rule of thumb is if you can make up your upfront fees in the first two years of payment savings, it’s a good deal. But always make sure to go over all the details of your current mortgage and the new mortgage to verify that you will actually save money.
I’m afraid I won’t be able to afford my ARM after the rate resets. What should I do?
One viable option is to refinance your mortgage to get a fixed rate that you know will not reset for the life of the loan. This will allow you to lock in a rate and you will no longer have to worry about increases in your rate and your monthly payments. In today’s environment fixed rate loans are competitive with ARM loans. If you can’t afford the fixed rate payment, and an ARM loan payment is attractive, make sure the new loan does not have a prepayment penalty.
I want to buy a boat. Should I get a cash-out refi?
If you have equity in your home, a cash-out refinance is definitely an option for getting access to a larger sum of money. However, since your home is at stake, you should be careful about what you use that money for. Many people use a cash-out refi on expenses that are also wise investments, such as a college education for their kids, consolidating and paying off debts, or making home improvements that will also increase the overall value of their home. While you may be able to get enough money to purchase a new boat, you should consult with a financial professional before doing so to confirm that it is a sound financial decision for you.
I want to refinance. Should I use a different lender?
Whether you use your current lender or a new lender is entirely up to you, and shopping around for the best rates when refinancing is always a smart move. However, there are times when going with your current lender can be beneficial. If you want to refinance because you’re having trouble keeping up with your mortgage payments, you should talk to your current lender first. You may be surprised to find that they are open to helping you find the right loan, get back on track with your payments, and avoid future problems.
I am facing foreclosure. Can refinancing help?
It depends on your specific situation, but yes, it can be a way to avoid foreclosure. First, check with your current lender to see if they are willing to work with you and help you refinance your home loan. If your problems are caused by an ARM that reset to a higher rate, you should also look into an FHA Secure loan. These loans are specifically made for people who are struggling with their ARM and want to refinance to avoid foreclosure. There are guidelines you must meet to qualify for an FHA Secure loan, but if you do, you can save your home. When facing foreclosure, always reach out to your current lender first.
I plan on selling my house next year. Can I still refinance?
You can refinance, but you may not actually save money by doing so if you plan to sell your house within the next year. Because the fees of taking out a loan can reach into the thousands, it can offset any monthly savings you might benefit from, and it can take 6 months to a year of paying the lower rate before refinancing actually pays off.
If the current rates are lower than when I got my mortgage, should I refinance?
That depends on how much lower the currents rate are. It’s usually recommended that you wait until interest rates are 1% lower than the original rate on the loan. There are always other factors that can affect your situation, and the 1% is only a guideline. Speak with a mortgage professional or financial advisor if you don’t know what works for your situation.
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Average Mortgage Rates
| program | apr |
|---|---|
| 30 Yr Fixed | 5.24% |
| 15 Yr Fixed | 4.77% |
| 30 Yr Fixed Jumbo | 6.07% |
| 15 Yr Fixed Jumbo | 5.61% |
| 3/1 ARM | 4.97% |
| 5/1 ARM | 4.4% |
| 7/1 ARM | 4.6% |
| 10/1 ARM | 5.1% |
| 3/1 ARM (I/O) | 5.54% |
| 5/1 ARM (I/O) | 4.36% |
| 7/1 ARM (I/O) | 4.75% |
Is it better to refinance or declare bankruptcy to avoid foreclosure?
To make this decision, you really need to evaluate your financial situation and seek the help of a credit counselor or financial professional. Bankruptcy is usually recommended as a last resort and has consequences that can affect your credit for a number of years. If you think you will qualify for a mortgage refinance that you can afford to pay, then it is worth exploring it as an option before heading down the road to bankruptcy.
Does my credit score affect a mortgage refinance?
Like with any other form of credit, your credit score will affect what kind of loan you can get and what the interest rate will be on the loan. Just because interest rates are low, doesn’t mean that you will be able to get the lowest rate available. Check your credit score before you start the process of getting a new loan. If your current score happens to be lower than when you get the original loan, you may not qualify for a better rate.
Can I pay off credit cards with a cash-out refinance?
Paying off credit cards with a cash-out refinance is a very common way to reduce that debt. While it can help you out of a difficult situation, it isn’t a habit that you want to get into. If you do it repeatedly, you can put your home at risk and push yourself into even more debt.
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