As a homeowner, you know the value of making your home as affordable as possible. Once you own the home, you have the option to refinance it, making it possible to replace your current mortgage loan with a new one. By refinancing with a rate and term refinance, you attain the possibility of paying off your loan at a lower interest rate (and with less total interest over the life of the loan), as well as the oppotunity to pay of the loan more quickly.
Regardless of whether the original mortgage was conventional, FHA or VA, you may qualify for a rate and term refinance. The qualification process for refinancing is similar to buying: You must meet the standards set for borrowers by two enterprises sponsored by the federal government, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation). Meeting those standards opens up the possibility of flexible options for refinancing.
There are two types of conventional refinance loans:
Rate and term refinances allow you to . . .
How to Obtain a Rate & Term Refinance
To learn whether a rate and term refinance is the appropriate option for refinancing your home, connect with us at Compass Mortgage! To get you started, we’ve outlined the steps and documentation you’ll need to better acquaint you with what’s involved.
Contact us! We’ll help you assess whether you’ll benefit from refinancing your current mortgage.
For a rate and term refinance, we will consider . . .
Once we’re worked through those steps with you, we will . . .
Here are the most common requirements to qualify for a rate and term refinance. If you have questions about these guidelines, we’re here to help!
Your home is a major investment. It’s ok to have questions about refinancing it! We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.
In most cases, if your name is on the title and you’ve paid on your current mortgage for at least six months, you’ll be able to refinance with a rate and term refi.
This depends on the type of refinance and the benefits you’re looking for. It’s best to have at least 20% equity in your home for a rate and term refi because achieving that level of equity makes it possible for you to eliminate PMI.
If your equity is less than 20% but your credit is good, you may still benefit from refinancing. However, you probably will continue to pay for PMI, and your interest rate may not be as low.
Any refinance goes through most of the same steps required to close a conventional purchase loan. As was the case when you bought your home, you will need a new appraisal for a rate and term refinance to establish the current value of the home.
Once the market value is determined, we can establish the details of your loan to identify the reduction in monthly payments with the refi.
A conventional refinance, whether rate and term or cash-out, can replace various types of purchase loans, including FHA or VA mortgages. Both of the conventional refis feature more options than either the FHA or VA loans. However, a conventional refinance requires more documentation, more time and a higher credit score for approval.
The FHA Streamline is available only to howeowners who currently have an FHA mortgage loan. The same is true for the VA’s IRRRL. The application process for these mortgages is abbreviated and less complicated than a typical rate and term refi, but there are fewer options.
As is the case with a conventional mortgage loan for the initial purchase of a home, there are up-front costs, those which are included in an ongoing monthly payment as well as closing costs. We will detail all of these expenditures as the loan is processed, and we’ll fully disclose the final sum prior to closing.
Generally, closing costs range from 2-4% of the total loan amount.
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