Ideal Lending Solutions Refinance
What is Refinancing?
Refinancing replaces your current mortgage with a new loan, consisting of a different rate, terms, and repayment factors. Behind the scenes, your current loan is repaid and
replaced with a new loan consistent with the new financing terms.
There are many tangible benefits to refinancing, including possibly lowering your monthly payment, the potential to drop your monthly private mortgage insurance premium, or even take cash out to renovate your home or consolidate debt.
2 Types of Refinance Loans
There are a couple of different refinancing options available to borrowers, each with its own subset of benefits, depending on your individual situation. The two primary options are cash-out and rate & term (also referred to as streamline) refinances. Let’s dive in and see why refinancing may be right for you.
Cash-Out Refinance
- UTILIZE HOME EQUITY
A cash-out refinance taps into the available equity in a home to provide a lump sum of cash that can be used in a variety of ways, such as home improvement projects and renovations. - CONSOLIDATE DEBTS
The interest rate on the new mortgage is often much more favorable than a credit card or personal loan. You may be able to take advantage of a fixed rate, as opposed to a variable rate which is used for many consumer credit agreements. This fixed rate will last for the full term of your loan. - POSSIBLE TAX BENEFITS
There are potential tax benefits with a cash-out refinance. In many cases, mortgage interest is tax deductible. Make sure to consult a tax advisor to find out exactly what type of tax advantage, if any, may apply to your situation.
Rate & Term Refinance
- LOWER INTEREST RATE
When current interest rates are lower than that of your existing mortgage, refinancing may be able to help secure more favorable loan terms for the life of the loan. - CHANGE LOAN TYPES
Some loan programs require mortgage insurance (i.e. FHA loans). which protects the loan guarantor or investor against default. A homeowner with at least 20% equity in the home may be able to switch to a loan type that doesn’t require this monthly insurance premium and effectively lower the monthly payment. - CHANGE LOAN TERMS
If you are in an adjustable rate mortgage, you may be able to secure a fixed rate mortgage., eliminating the risk of having your payment go up when interest rates climb.
Things to consider when Refinancing
Time
Time from application to loan funding varies, but is typically accomplished in three to six weeks. You can help speed things along by swiftly responding to requests for information and appointments for appraisal, doc signing, and other milestones that rely on your schedule.
Closing Costs
When crunching the numbers to determine if a refinance is beneficial, remember to consider closing costs, including but is not limited to, recording and title fees, appraisal costs, and loan origination fees. Your Loan Originator can help you analyze that cost and calculate the cost recoupment timeframe.
Property Inspection Waivers
Some refinance transactions qualify for a Property Inspection Waiver (PIW) which would waive the requirement of a property appraisal. The PIW is typically offered by a lender on a refinance transaction when the value of the property is not in dispute. Waiving the appraisal can save both time and money.
Impact to Credit Score
When applying for new credit, always consider its effect on your credit score. A new inquiry can lower one’s credit score by a few points. If used for debt consolidation purposes, a refinance can also increase a borrower’s credit scores over time by lowering their overall credit utilization and paying off higher balances.
