Reasons To Consider Mortgage Refinancing
Refinancing in mortgage lending is when a homeowner, who has existing financing on their home returns to the market and replaces the existing mortgage, hopefully on better rates and terms than the original.
There are many good reasons to consider refinancing your home but it might require a careful examination of your specific circumstances to determine whether it is justified. Any time that you apply for financing you have to go through the entire application process; refinancing is no exception.
The Traditional Mortgage Refinance
For homeowners that want to reduce their outstanding balance, term or payments, bringing cash-in at closing can create a real advantage. Homeowners, for whom it is an option to bring cash to closing, can use mortgage refinancing as a great way to take advantage of the situation.
For example, on a conforming loan, by contributing cash at closing a homeowner could reduce the balance to below 80% LTV, enhancing the savings by eliminating the need for private mortgage insurance.
In some circumstances it might be desirable to receive cash-out at closing. This type of cash-in-hand at closing increases the balance of the loan although the interest rate might be lower or the term may be shorter. The rule is that a cash-out refinance is one that gives you more than $2,000 at closing.
Finally, the rate-and-term refinance is just an adjustment of rate or term or both. There need not be any additional cash either way at closing, although there will be fees that will likely be added to the balance of the loan.
Applying For Mortgage Refinance
There are three things that lenders will consider when you apply for mortgage refinancing. In the same process as when you are seeking finance to purchase a home, your application will be evaluated for your credit score and payment history, cash and assets that you own, and your employment history and income.
In addition to the paperwork the home will require an appraisal to accurately determine the current market value. As long as the property and the borrower are acceptable under current mortgage guidelines, the new loan will replace and pay off the existing loan.
Special Streamline Refinancing Programs
In addition to the traditional mortgage refinance available on the home loan market there are several simplified or streamlined refinancing programs. Homeowners with existing government-backed loans have options to refinance where the guidelines are less stringent. Programs such as the Home Affordable Refinance Program (HARP) provide streamlined refinancing for existing loans held by Fannie Mae or Freddie Mac loans. The Veterans Administration Interest Rate Reduction Refinancing Loan (IRRRL) provides improved terms for borrowers with VA loans.
The process of mortgage refinance is repeatable as often as the homeowner chooses. However, the costs associated with it mean that it is best done sparingly and at strategic times, such as when home values have increased significantly or when the homeowner has had a significant windfall that improves the payments or term of the loan.