To continue our 3 part series about Home Mortgage Refinancing, we want to point out that everyone has a different financial picture, unique goals and specific reasons why a refinance may or may not be the right course of action. Always seek out a mortgage professional to discuss your scenario so that you can make the best decision for you and your family.
Click here to read Part I: Should I Refinance My Home?
We've covered the questions you might have about whether you should refinance your home and we've given you a checklist of important documents and info you should have on hand but just to make sure you're confident - we're answering many commonly asked questions about refinancing.
Common Refinance Frequently Asked Questions
- What is a home refinance?
- In it's basic form - a refinance is securing one loan to pay off an existing loan. By doing this you can change the loan amount, rate, terms and/or the borrowers on the loan.
- What does a home refinance cost?
- This will vary by lender but typically the closing costs of a refinance range between 1% to 2% of the loan amount. There are special programs available to allow for a low-cost or no-cost refinance.
- What does "paying points" mean?
- Paying points allows you to lower your interest rate. Remember that interest rates fluctuate daily and are based on current industry markets. Read more about how interest rates work here » If you would like a lower rate than the going rate, you can have the option to pay a portion of the loan amount to lower the rate associated with your refinance loan. This amount will vary by lender so talk to your mortgage professional.
- Does a refinance loan have a fixed or adjustable rate?
- Either! This actually depends on which kind of loan program you choose and qualify for. The interest rate of a fixed mortgage will not change for the life of the loan whereas an adjustable mortgage will change with the industry standards.
- Is a loan modification the same as a refinance?
- Not exactly. A loan modification is an agreement with your current lender to change the amount of the loan, the payment amount, the rate or terms of the loan. For example, a loan modification may allow you to lower your monthly payment but result in extending the term of the loan. Often loan modifications are handled directly between the consumer and the servicing company and require no additional fees. Be aware of companies that offer to modify your loan on your behalf for a charge. Often you can achieve the same results without paying a 3rd party company.
- What is PMI?
- PMI is an abbreviation for Private Mortgage Insurance. In many cases, borrowers who have less than 20% equity in their home when refinancing may be required to pay PMI or the rate will be higher to cover this cost.
- Does my home need to be appraised to secure a refinance?
- Yes. In the past, there was a lower cost appraisal option (often referred to as a "Drive-by Appraisal") however now, all loans require a full appraisal.
- How much equity do I need to have in my home to refinance?
- This will vary by lender however the general rule is that you need at least 90% loan-to-value before you can apply for a refinance. For example: You would need $20,000 in equity for a home that is valued at $200,000. This may mean that you have made enough payments to have more than 10% of equity in your home or your home value has increased over time.
- How good does my credit score need to be to qualify for a refinance?
- This will vary by lender but keep in mind that the better your credit profile is, the more likely you are to be approved and secure a good interest rate. Since one of the major reasons that people refinance is to lower their interest rate, a good credit score helps.
- Do lenders still offer "cash-out" refinances?
- Yes. There are many different refinance programs available that vary by lender. There are programs that allow you to take out equity to use to pay-off debt, home repairs or remodel and more. Make sure that you discuss the pros and cons of a cash-out refinance with your mortgage professional.
- How long does the refinance loan process take?
- Every lender has different turn-around times. On average, a refinance may take 30 to 60 days from beginning to end however it's always good to remember that because refinance loans are not requiring people to move like home purchase loans, they can take longer to process.
Have a question that we didn't answer? Leave us a comment and we'll be sure to address your concern.
You can also take a moment and try out our Refinance Calculator here »
Midwest Equity Mortgage
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