Refinance A Loan
To “Refinance” means to revise an existing mortgage. The current mortgage is paid off and is replaced by a new mortgage. People typically refinance to lower their interest rate, pay off debt, cash-out equity, or change loan type/terms. Today’s mortgage rates are at or near historic lows; and over 50% of homeowners with mortgages pay interest rates above today’s current rates. Many could save thousands by refinancing. Are you one of them?
Costs Associated To Refinance
Up Front Costs
These are costs you need to pay to start the process. It’s important to separate these from other closing costs because these represent money you will be out of pocket if the refinance application is denied. At Foundation Mortgage our licensed bankers will review your credit, income and asset information prior to sending out an application and charging you for an appraisal.
- Typical Up-Front Costs may include:
- Credit Report Fee
- Appraisal Fee (If an appraisal is required).
- New mortgage payment & interest costs on cash-out refinances
Closing Costs refer to the various fees and costs you will need to pay at closing in order to complete the refinance. Upfront costs + closing costs = the total amount of money your home refinance will cost you. In order to determine whether you should refinance you will need to know what the closing costs are so you can evaluate whether the benefits of the refinance will be worth the costs.
- Typical closing costs include:
- Lender Fees
- Title Company/Attorney Fees
- Government Taxes
Associated Costs With Cash-Out Refinances
Cash-Out Refinances increases the amount of money you owe. This increase in loan balance owing results in a higher mortgage payment and increases the amount of principal and interest you pay monthly. Increasing the loan amount can also result in an increase to your insurance premium through higher insurance coverage requirements. It is important to consider the increased cost of mortgage interest and potential insurance premium increases when you are considering a cash-out refinance.
Saving by Refinancing
The savings opportunity in todays’ low interest rate environment is substantial, but refinancing your home can have certain costs associated with it; therefore, you will need to evaluate whether the benefits outweighs the costs to refinance your existing home mortgage. Below you will find some basic knowledge and things to consider when trying to determine if a refinance makes sense for you.
Should I Refinance My Home?
People Refinance their Home for many reasons. Below is a list of the main reasons people consider a home refinance and some considerations you should consider in determining whether refinancing makes sense for you. Refinancing involves your time and can have some upfront costs. Foundation Mortgage offers Pre-Approvals and a detailed Refinance Benefit Analysis to help ensure that you are able to qualify & are comfortable with the costs and benefits of refinancing PRIOR to ordering an appraisal. Click here to Get Pre-Approved Now!
Low Interest Rate & Monthly Payment
Refinancing into a similar mortgage with a lower interest rate is the most common reason people refinance their home mortgage. Lowering the interest rate on your mortgage lowers your monthly payment, and decreases the amount of interest you will pay over the life of your mortgage. Many homeowners have refinanced several times taking advantage of the lower payments & substantial long term savings. There isn’t much lower mortgage rates can go leading many to refinance one final time before the markets shift upwards again.
Change the Term of the Mortgage
Common mortgage terms are 30, 25, 20, 15 and 10 years. Shorter mortgage terms typically offer lower interest rates. There is typically a large difference in interest rate between a 30 and 15 year term. Shortening your term pays your mortgage off more quickly & greatly reduces the amount of interest you will pay over the life of the loan. Paying off your mortgage more quickly increases your monthly payments. You will need to evaluate whether you can afford the increased payments.
Remove Private Mortgage Insurance
Mortgages where the loan amount is greater than 80% of the appraised value of the property require CMHC Insurance. It is common for first time home buyers or other borrowers with limited funds for a down-payment to get a loan with Mortgage Insurance when they buy a home. Once the value of the property has increased, or you have the ability to pay down the mortgage to 80% or less of the new appraised value, it is common to refinance to remove the mortgage insurance and significantly reduce the monthly payment.
Take Cash Out
Pay off other debt and consolidate it into your mortgage
Pay for home improvements
Pay for tution, medical or other bills
Purchase another home