Replacing your existing home mortgage with a new one is called refinancing. Rather than creating a new mortgage and discarding the original one, refinancing pays off the first loan and allows the refinanced loan to be created under better terms and rates.
Loan options include:
There are many reasons and methods to consider before deciding how to refinancing your home mortgage.
Some of the reasons to consider a refinance are to:
When used wisely, refinancing can help you get your debt under control.
Some of your reasons for refinancing may have drawbacks as well as benefits. So it is important to look at both sides of the equation. Refinancing can cost between 3 percent and 6 percent of the loan’s principal and, depending on the type of refinancing, require an appraisal, title search and application fees. That’s why it is a good idea to learn more here, then talk with the experienced mortgage advisors at Forthright Funding. We can provide you the information you need to determine whether refinancing offers a true benefit.
Lower your interest rate, go from a 30-year to a 15-year loan, consolidate debt, convert from an adjustable rate mortgage (ARM) to a fixed-rate mortgage (and vice versa), or leverage your home’s equity to finance a large purchase.
Lower Interest Rate
A refinance not only can lower the interest rate on a mortgage loan but also the mortgage payment. This is the main reason many people refinance.
As one example of the cost savings that can occur, let’s take a $200,000 mortgage loan with a 6 percent interest rate. When you refinance at a 4 percent interest rate, the difference in monthly mortgage payments is nearly $250 per month.
Convert an Adjustable Rate Mortgage (ARM) to a Fixed Rate
ARMs meet the needs of many people who want a lower interest rate during the initial fixed time period of their home mortgage. But if you plan on being in your home for many years, you run the risk of an interest rate increase – at the very least a fluctuation that is unpredictable – after that initial rate expires, so converting to a fixed rate with predictable payments is your best bet.
Cash Out Your Equity
Equity is the difference between what your home is worth and what you owe on your mortgage. If you’re planning to remain in your home awhile, you can borrow against your equity and refinance for more than your house’s current principal balance. Then, use the additional cash to make home improvements, pay off debt, put toward your children’s college tuition, or start a business.
Shorten the Length of Your Loan
Save on interest and pay off your home sooner. Depending on what the change in your interest rate is at the time of refinancing, there may not be much change in your monthly mortgage payment, and you’re paying your home off sooner. It’s important to remember, your mortgage is just one piece of your personal-finance pie, so consider the fact you may be paying more each month and whether that increase, however slight it may be, will impact your other expenses and overall financial situation.
Cashing Out Your Equity
The downside is that it gets you deeper in debt and may increase your monthly mortgage payment. Not to mention, you could be at risk for losing your home in the event you are unable to make mortgage payments when you exchange credit card and other unsecured debt for debt secured by your home. This isn’t necessarily the case if you were to default on your credit card debt.
Changes in Credit Score or Salary
Having an existing mortgage does not guarantee a refinance approval. Your financial information and credit report are reviewed very carefully. If your credit score has dropped or if you’ve recently suffered a salary reduction or job loss, you may not necessarily be approved. If you are approved, it may just be at a higher rate. You may be asked for copies of tax returns and recent paycheck stubs to verify your income.
Often, homeowners aren’t made aware in advance of costs that can be incurred to refinance. That’s why Forthright Funding is dedicated to providing you with the knowledge to make informed decisions. While our costs are lower than other higher priced mortgage lenders, it’s important to realize what’s involved. Closing costs can range from 3 percent to 6 percent of the loan balance. Fees also can include the home appraisal, the application fee, the title search, the credit report fee, discount points, and the loan origination fee. Depending on the type of refinancing you choose, some of these fees may be waived.
Mortgage-related fees are paid out-of-pocket at closing or they can be added into your loan balance. In addition, if you’re refinancing into an FHA loan, for example, you will required to pay an upfront fee for mortgage insurance.
A home’s value is assessed by an appraiser who uses recent comparable sales in the community. The results of an appraisal are so impactful that they can make or break the deal, determined by whether you have equity in your home. There are government refinance programs to help upside-down borrowers, and in those instances homeowners are able to refinance with no equity. In most cases, home equity is a requirement for refinancing.
Overall, mortgage rates are expected to continue rising, but slowly, possibly with an occasional dip here and there. Now might be a great time to explore whether refinancing is right for you – before rates go higher.
Looking at the big picture helps to keep things in perspective. While rates for mortgages are changing, overall they are quite low when you look at trends historically. Most years during the past 50 have seen higher rates, and homebuyers would have been thrilled to get mortgage rates in the 4 percent range.
HARP is designed to help responsible borrowers refinance for the purpose of securing a lower interest rate, a fixed rate mortgage, or a reduction in your mortgage’s term.
Furthermore, this program helps these borrowers regardless of whether or not they have any equity in their homes; hence the term “underwater.”
This program has been additionally designed to help homeowners who have not been able to find assistance refinancing elsewhere due to a decline in their home’s value.
You may be eligible to refinance with HARP through Forthright Funding if you meet the following criteria:
Please note that these criteria should only be used for guidance*, and that you should contact Forthright Funding or live chat with us now to determine whether you are eligible for HARP.
*Information provided by MakingHomeAffordable.gov.
At Forthright Funding, we’re here to make the refinance process as convenient as possible.
Either way, you’ll receive the personal attention that demonstrates our commitment to you.
Discover The Difference
At Forthright, we will always treat you like a neighbor and not like a number. So, if you're ready to put down some roots or transplant the ones you have, please feel free to give us a call at
7047 E Greenway Pkwy
Scottsdale, AZ 85254
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