Refinancing a Mortgage

Consumers typically refinance a mortgage in order to pay off their existing mortgage. Lenders will not approve a refinance transaction unless there is a net tangible benefit to the borrower.

Reasons to Refinance a Mortgage

The basic rule of thumb is if the borrower stands to gain five times the financial benefit from refinancing over the required closing cost, then it makes sense to consider a refinance. You should also consider refinancing if:

Your current home value has increased
Interest rates have dropped
You are looking for new loan terms
pros
  • Allows you to access the additional equity in your home
  • You can get out of paying mortgage insurance
  • You can get new terms or a lower interest rate
cons
  • There are costs associated with the refinance
  • Your loan terms could be extended

When it Makes Sense to Refinance

Your home value has considerably increased
You obtained your loan at a lower lending limit than the current limit ($679,500)
You will benefit from a lower interest rate or margin
You benefit from new loan terms or avoid mortgage insurance

Criteria to Refinance a Mortgage

Your debt and income ratio's are acceptable
You have equity in your home
Your credit rating is acceptable

Types of Mortgage Refinancing

No Cash-Out Refinance This is the most popular refinance loan available, also known as rate and term refinance. The primary purpose is to reduce the interest rate or decrease the loan term.

Cash-Out Refinance A risky loan that will carry the highest interest rate and lowest loan-to-value (LTV) compared to other refinance options. Considered a type of debt consolidation loan because the borrower uses the equity in the home to pay off debts.

Limited Cash-Out Refinance A type of transaction that allows the borrower to receive cash back of 2% of the loan amount, or $2,000, whichever is less. Still considered a no cash-out refinance.

Did you know loan limits increased earlier this year?

Did you know loan limits increased earlier this year? The loan limit for HECM reverse mortgage loans increased by $43,500, from $636,150 to $679,650.