Mortgage interest rates are ultra-low¬†and there may never be a better time to refinance.
Today's mortgage rates are¬†down, increasing home affordability by roughly ten percent as¬†compared to the start of 2014.
The homes at which you've been looking are now less costly to finance.
For¬†current homeowners, the 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 July¬†15.¬†You will have made a mortgage payment for June¬†already, and¬†the 15 days of interest for July¬†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 July¬†payment will have been made-in-full.
Now, you won't make a mortgage payment August¬†1 because that interest, which is typically collected in arrears, was already collected at the time of your¬†closing.
Your "normal" mortgage payments resume September¬†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 are low.¬†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 today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (May 26th, 2017)
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.
Judy T. Business Owner
I read The Mortgage Reports every day.
Sarah M. Office Manager
The Mortgage Reports has been an invaluable resource to me -- it helped me to pick the sweet spot to refinance. Thanks!
Dick B. Director of Special Lending
I read The Mortgage Reports because it delivers timely, up-to-the-minute mortgage news. Keep up the good work.
2017 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)