Refinancing

Refinancing your home can be a big step, so you want to be prepared. We created this guide to give you a little insight into the refinancing process and answer some of the questions you may have about your refinance.

What is Refinancing?

Refinancing, in its most simplistic definition, means to finance something again. In terms of your mortgage, refinancing means to secure a new mortgage with a new rate, term, amount and sometimes, even a new mortgage company. Refinancing is the process of getting a new loan to pay off the remainder of your original home loan.

What are the different types of refinancing?

There are limitless personal reasons to refinance. Maybe you want to get rid of that pesky PMI. Or you’re just a proponent of change! Whatever the reason, Stockton Mortgage Corporation offers a variety of refinance options to suit your needs. Here are a few:

  • Rate/term refinance is a mortgage refinance where your interest rate and term of your loan change, but not the loan amount. For example, your motivation to refinance may be that you have an adjustable rate mortgage with the fixed period due to expire – a rate/term refinance may be right for you.
  • Limited Cash Out refinance is much like a rate/term refinance where you can secure a new rate and term for a different payment, and also receive a limited amount of cash back at closing.
  • Cash Out refinance is when you refinance your mortgage for more than you currently owe, allowing you access to the difference. If you find yourself with an upside down mortgage, there is hope. HARP (Home Affordable Refinance Program) is a government program that aims to eradicate the problem of homeowners with upside-down mortgages being unable to refinance. If you are a homeowner looking to refinance your home and are currently upside down on your mortgage, talk to your mortgage banker about how the HARP program can help you – the HARP program is renewed on a yearly basis through the government, which our SMC mortgage bankers stay abreast of. Each type of refinancing, while they all function to adjust your mortgage payment, entail different benefits – reaching out to an SMC mortgage banker for further insight is as easy as a phone call!

Why should you refinance?

There are numerous ways refinancing is beneficial to homeowners. If you’re looking for a silver lining, we’ve got a couple!

Here are some of the things that refinancing can allow you to do:

Lower your interest rate: Obtaining a lower interest rate is a popular perk of refinancing. In fact, most homeowners who are looking into refinancing are seeking lower interest rates. This can be beneficial to a home owner, especially after a significant market change.

Here is an example of how drastically your interest rate can affect your loan:

refinancing mortgage

* For a 30 year loan, a $180,000 mortgage loan with a rate of 5.5% (APR 5.615%) with no points, would have a monthly payment of $1,022.02 (principal and interest).

* For a 30 year loan, a $180,000 mortgage loan with a rate of 4.0% (APR 4.095%) with no points, would have a monthly payment of $859.35 (principal and interest).

Adjust mortgage length: Another reason to refinance is to adjust the term of your mortgage – either to shorten or lengthen the term of the loan, both of which have di erent benefits.

One option – if you’re feeling froggy – is to decrease the term of your loan to pay it o early. But keep in mind that doing so will cause your monthly payments to increase.

Another option is to lengthen your mortgage term to lower your monthly mortgage payments.

Here is an example of how your mortgage length can affect your payment:

mortgage length

* For a 15 year loan, a $180,000 mortgage loan with a rate of 5.0% (APR 5.193%) with no points, would have a monthly payment of $1,423.43 (principal and interest).

* For a 30 year loan, a $180,000 mortgage loan with a rate of 5.5% (APR 5.615%) with no points, would have a monthly payment of $1,022.02 (principal and interest).

Change from an adjustable rate to a fixed rate: Most homebuyers that begin with an adjustable rate mortgage (ARM), go through a refinance to secure a fixed rate. Some home buyers feel that a fixed rate mortgage offers more security.

Here’s the good news – you don’t have to just have one reason to refinance. (What?! No way!) In fact, many homeowners choose to refinance for all the reasons listed above. Many homeowners refinance for both an interest rate adjustment and a term adjustment. Either way, it is the preference of the home owner and is largely based on the current interest rates and eligibility factors.

What steps does refinancing involve?

The refinancing steps are similar to those taken with your original mortgage loan, as far as required documentation, appraisal, underwriting and the overall process. If you’re thinking, “Good grief, I totally just did that!” – remember this: when you refi with SMC, we make every effort to make the process as painless as possible. So take a deep breath, while we explain the process again.

Your mortgage banker will again assess your:

  • Income
  • Assets
  • Credit Score
  • Debt
  • You will need another appraisal
  • You will go through processing and underwriting again
  • You will have another closing

How much does it cost?

Closing costs will be similar to the closing costs of your first mortgage’s origination. Closing costs vary by lender and by situation and are o en difficult to approximate. If you were issued a mortgage after July 2015, you might be familiar with a Closing Disclosure, which is an estimate of what your closing costs might be. During the refinance process, you will also receive a Closing Disclosure which details potential closing costs. If you have questions about the Closing Disclosure, ask your Stockton mortgage banker or check out our Understanding TRID guide.

LTV, upside down mortgages and HARP are all terms you may encounter on your road to refinance – so before you go into your refinancing, you should have a good understanding of them.

LTV – LTV means loan-to-value, this is a ratio calculated by taking the amount of your loan and dividing it by the value of your home (your home’s value is determined by your appraisal).

Upside down mortgage – If a homeowner is upside down on their mortgage, it basically means that the home’s value is less than the amount of the outstanding mortgage. How does this happen? There are many different factors that can cause homeowners to become upside down on their mortgage – most likely, however, significant market shifts create this situation.

FAQs

If I have a conventional loan, can I refinance FHA?

Sure, maybe – If you qualify! It is possible to qualify for a different type of loan than the one you had, when you refinance. One of our qualified mortgage bankers can help you find the right loan for you, even if it means going from one loan type to another, i.e. a Conventional home loan to FHA, or FHA to Conventional.

Can I refinance my first and second mortgage?

Yes – depending on certain criteria, your first and second mortgage could be refinanced as a rate/term or cash out refinance.

Can I refinance my first mortgage and not my second?

Yes – though refinancing your first mortgage exclusive of your second (as opposed to consolidating the two into one) can make for a slightly different process – ask any of our SMC mortgage bankers for more information.

Can I refinance my loan to a Rural Housing loan?

That depends – if you’ve received a Rural Housing loan and you’re seeking a payment adjustment, refinancing options are available. In order to refinance to a Rural Housing loan, your current mortgage must already be RHS. So for example, you cannot refinance a Conventional home loan or FHA loan to an RHS loan.

Congratulations!

You now have all the tools you need to sell your home quickly. To view all of our educational guides, check out our other guides. We would love to hear how this guide helped you and we hope that you will call us and share any questions or comments you may have. Call us toll free 1 (888) 914-2276.

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