Refinancing occurs when a person wishes to pay off their current mortgage and create an updated edition of it. It is often a similar process to acquiring an initial mortgage due to its relatable costs and protocols. Some even use the refinancing option to combine their second mortgage into their primary mortgage.
Motivational factors for refinancing can vary. Many times, they stem from either a decline or increase in interest rates, a person’s improved credit score or a wish to alter a mortgage.
Refinancing can help lower your interest rate, as rates are bound by how much a person pays each month on their mortgage. Lowering an interest rate can also help expedite the process of building equity in a home. If market conditions change or a person’s credit score increases, refinancing can be highly beneficial.
Another way refinancing can be a big aid is the adjustment to a mortgage. Increasing the length of a mortgage will help since the required monthly payment will be reduced. Yet the length of the mortgage will be extended, which will lead to a person making more payments on their mortgage and paying more interest.
Refinancing to decrease the length of a mortgage can also help a person achieve lower interest rates. Often times this involves altering a 30-year mortgage to a 15-year mortgage. This leads to a person paying off their loan earlier than originally planned, which reduces their total interest expenses. However, the monthly installments will increase since the person is paying more on the principal balance.
It can be uncomfortable for some to know their mortgage payments could increase depending on interest rates. Some choose to refinance to switch from an adjustable-rate mortgage to a fixed-rate mortgage. This can give a person peace from understanding their monthly mortgage payment will be consistent, as will their interest rate.
Others who like the ARM option can still refinance to obtain an ARM with more favorable terms. A new ARM can offer a person a lower interest rate or perhaps lower payment caps where the interest rate may not be more than a specified amount.
For those with built-up equity in their homes, they can utilize cash-out refinancing. This occurs when the amount a person refinances their home for greater than what they owe, thus a person can obtain a cash payment of the difference between them. This option is popular for people who want to make renovations to their home or need funding for their children’s education expenses. The drawback with this option is that it takes away prior-built equity, thus less of the home will be owned by the person and they’ll need to re-start the lengthy process of building up their equity.
As mentioned earlier, the refinancing process is similar to the original home-buying process, which includes mostly how refinancing eligibility is determined. Lenders will review assets, income, credit score, property value, other various debts and the total a person is requesting to borrow.
Property value is decided by an appraisal. Lenders have measures involving a person’s loan-to-value ratio falling within their guidelines, which impacts their decision to offer a loan and its terms.
Costs for refinancing usually range between three 3% and 6% of the principal in refinancing expenses, plus any prepayment penalties and other fees. They can consist of an application fee, loan origination fee, appraisal fee, inspection fee, homeowner’s insurance, insurance fee, various loan program fees, survey fee and title search and insurance fees. Fees vary from lender to lender and state to state.
“No-cost” refinancing can be offered, which can also vary by lender. Borrowers can avoid the paying of up-front fees by asking if a lender can cover their closing costs in exchange for a higher interest rate. Another option is to have fees included in their loan to become part of the borrowed principal.
If you are interested in refinancing your wonderful home in Dallas, Stonebriar Mortgage can surely assist you! Contact us today at (214) 669-3307.