Mortgage interest rates are back below 4%¬†and there may never be a better time to refinance.
After Greece's debt default and a weak June jobs figure,¬†today's mortgage rates are¬†down. Declining rates have increased home affordability by roughly ten percent as¬†compared to the start of 2014 and you can now afford to purchase more home.
Or, phrased differently, the home at which you were looking last year has become¬†less costly to finance.
Plus, for¬†current homeowners, this week's rate drop creates new opportunities to refinance. Not only is it easier to qualify for a refinance¬†this year, the savings homeowners are claiming are often hundreds of dollars per month, and thousands of dollars per year.
A mortgage refinance is the process of replacing your current mortgage with a new one. The steps are straight-forward and can be handled by any licensed bank or broker -- your current mortgage lender or otherwise.
There are three different types of refinance loans.
Rate-and-term refinance loans are the most common of the refinance types. In a rate-and-term refinance, the homeowner lowers its interest rate, shortens its loan term, or does a combination of both.
The cash-out refinances is the second-most common refinance type.
With a¬†cash-out refinance, the homeowner can convert its home equity into cash. The "cash" of a cash-out refinance is handed to the homeowner at closing, and can be used for savings, debt consolidation, home improvement, or anything else.
The third refinance type is the cash-in refinance.
In a cash-in refinance transaction, the homeowner brings cash to the closing in order to reduce the total amount owed. Generally, a cash-in refinance is used to reduce loan-to-value (LTV) which can help a homeowner get access to a lower mortgage interest rates.
Cash-in refinances can also be used to remove private mortgage insurance (PMI) from a loan.
When you refinance your mortgage, you are replacing your existing home loan with a new one. Because the loan is "new", then, banks make many of the same verifications they made at the time of purchase.
There are several notable exceptions to this rule -- for example, the¬†FHA Streamline Refinance and¬†VA Streamline Refinance¬†required neither a verification of employment nor of income¬†-- but for most new loans, an update to your verifications is required.
Mortgage refinance approvals are based on three basic ‚Äúingredients‚ÄĚ, which have come to be known as the 3 C‚Äôs of underwriting. They are Capacity, Credit, and Collateral.
The good news is that the documentation for a refinance loan is typically less as compared to a comparable purchase loan. Borrowers should expect to provide proof of income, documentation of assets, evidence of citizenship or residency status.
Overall, though, total paperwork required is less.
As part of the mortgage refinance, your soon-to-be¬†lender will request a "mortgage payoff" from your existing one. Your "mortgage payoff" is the amount required¬†to pay your loan in full, and to satisfy the terms of your current mortgage loan.
Whether you are refinancing with your current mortgage lender or a new one, the payoff is required; and mortgage payoff are among the most misunderstood components of a refinance.
It's common for borrowers to confuse their current mortgage balance as shown on a recent statement with their mortgage loan payoff.
These are two different figures.¬†The mortgage payoff amount will almost always be higher amount than the balance listed on a monthly statement. This is because the statement shows your balance from some point in time, and the payoff reflects that amount known plus interest.
Remember: Every day you borrow money from a bank, you incur charges for interest. If today is the 15th of the month, then, your mortgage payoff would include 15 days of mortgage interest which have accrued since your statement was last published. ¬†
In addition, your¬†mortgage payoff amount may include other fees incurred but¬†not yet paid such as escrow account deficiencies and processing costs charged by your lender.
The items most commonly found¬†on a¬†mortgage payoff statement are:
The responsibility of requesting a mortgage payoff falls to your soon-to-be mortgage lender. You may request a copy of the payoff letter in order to review it for errors; or, to be better prepared for your closing.
There are two fundamental truths with a refinance loan:
Put these two items together, and it can appear as if you're "skipping" payments when you make a refinance. Rest assured, you're not skipping anything -- you pay interest to the bank for every day you borrow against your home.¬†¬†
Here's how it works.
Assume your refinance loan closes on February 15.¬†You will have made a mortgage payment for January already, and¬†the 15 days of interest for February will be added to your payoff. Then, at closing, your new lender will collect the remaining daily interest charges for the month.
At the time of closing, then, your February payment will have been made-in-full.
Now, you won't make a mortgage payment March 1 because that interest, which is typically collected in arrears, was already collected at the time of your¬†closing.
Then, your "normal" mortgage payments resume April 1.
No months were skipped and no¬†days, even. You paid mortgage interest for every day you borrowed to live in the house, which was all of them.
Today's mortgage rates continue to hover near four percent. It's an excellent time to consider a refinance to lower rates and payments. Low rates have defined this year's market but there's no promise that rates will stay low forever.
Get a complimentary mortgage rate quote today. Rates are available online at no cost and with no obligation to proceed. Your social security number is not required to get started.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)