October 2019

Top 4 ReFi Questions

Top 4 ReFi Questions

Curious about Refinancing? It can be a very smart and strategic move in the game of homeownership. However, if you’re not familiar with the concept, we can understand how you may have some questions. With that being said, let’s take a look at the Top 4 ReFi Questions: 

1. “What the Heck is Refinancing?”

Refinancing occurs when you get a new mortgage to replace the original mortgage. Refinancing is done to help a mortgage borrower; Whether it’s obtaining a better interest rate & term, pulling cash out of your equity or consolidating debt. The first loan gets paid-off, allowing a new mortgage loan to be created. It’s simply making a new mortgage and throwing out the original Mortgage.

Most people tend to Refinance once they’ve had Equity built-up in their home. Much like “putting money down” for the original mortgage, you can use your Equity towards Refinancing. Many borrowers tend to think that you need to have at least 20% Equity in your home in order to do this (Much like the myth of needing 20% cash to put down to obtain the original Mortgage.). However, you can Refinance with less; you just may need to pay a monthly PMI (Private Mortgage Insurance) if you’re above the 80% loan to a value mark. But, the good news is that the money you save by Refinancing can be substantially more than the PMI payments- benefiting you in the end. (Plus, PMI is usually on a temporary basis.)

2.“Can I skip 2 mortgage payments when refinancing?”

There are two possible ways to accomplish this: If you close early in the month before your next payment is due, the interest due can be added into your new loan amount.

In order to skip two mortgage payments, you’d need to close on your refinance sometime before the 15th of the month prior to the payment on the old mortgage is due (using the grace period to delay and avoid late payment charges).

If you’ve already made your mortgage payment for the month, the good news is you’ll still have one month of zero mortgage payments.  (It’s important to remember that mortgage interest is always paid in “arrears”.)

What is “arrears”? It means your principal and interest payment will pay the interest for the 30 days immediately preceding your payment due date. 

For example, say your payment of $599.55 is due December 1. Your loan balance is $100,000, bearing interest at 6% per annum, and amortized over 30 years. When you make your payment by December 1, you are paying the interest for the entire month of November, all 30 days.

3.“Is there anything I should consider first?”

There are many factors to consider before refinancing your mortgage. These elements can determine if you should refinance, and if so, which mortgage is the right one for you.

  1. Your DTI (Debt-to-Income Ratio): This can determine your eligibility in obtaining a refinance.
  2. Your current debts: A refinance can help you consolidate debts.
  3. Your current interest rate: If you’re on the hunt for a better rate, a ReFi might be the way to go!
  4. Your current monthly payments: Are they too high? Check out your refinancing options.
  5. The term of your mortgage: Looking to adjust the term of your current mortgage – maybe by extending it back to a 30 year or shortening the term to maybe a 10 to 15-year option to save money on interest. 

4. “Are there any hidden costs with ReFi’s?”

There are a few different costs and fees when you refinance like:   

  1. Origination Fees QUICK NOTE: Origination fees vary between lenders, brokers and banks and the type of loan you’ll refinance into.
  2. Appraisal Fees
  3. Attorney Fees
  4. Title Fees
  5. Recording Fee
  6. Closing Agent
  7. Pre-Paid Tax & Insurance Payments (to set up an escrow account) – G
  1. Do you need emergency funding (cash)?: A refinance with a cash-out option can help get you the cash you need to pay for home improvements or pay-off some of those pesky debts.
  2. Your Credit score(s): Like your DTI, your credit scores can help determine what refinance options you’re eligible for.

Do you still have any questions? For more answers, check out our Refinancing page here.

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