Refinance Your Home
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 can lower the interest rate or pay off the loan more quickly—or both. What’s more, you can reduce the total amount of interest you pay.
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: a rate and term refinance and a cash-out refinance. (Note similarities and contrasts just below.)
| Feature | Rate & Term Refinance | Cash-Out Refinance |
|---|---|---|
| Ultimate Aim | Reduce the total interest paid on a mortgage loan | Transform home equity into readily-available cash |
| New (Resultant) Loan Balance | Same as most recent balance of current mortgage | Larger than balance of previous mortgage |
| New Interest Rate | Usually lower than the rate it replaces | Usually higher than original rate |
| Requisite Equity |
20% or more (Recommended) |
At least 20% (Obligatory to avoid PMI) |
|
Appraisal? Closing Costs? | Yes to both | Yes to both |
Rate and term refinances allow you to . . .
Rate and term refinancing becomes advantageous when . . .
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.
We will consider . . .
We will also . . .
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!
More than merely a place to live, your home is a major investment. It’s perfectly OK to have questions about refinancing it! We’ve compiled answers to 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.
A rate and term refinance goes through many of the same steps required to close a typical purchase loan. As was the case when you bought your home, you will need a new appraisal for a rate and term refinance in order to establish the current value of the home.
Once the actual value is known, we can finalize the details of your loan to determine any reduction in your monthly payments and other important details.
A rate and term refinance can replace various types of purchase loans, including FHA or VA mortgage loans. A rate and term refi also provides several options. However, it also requires more documentation, more time and a higher credit score for approval.
The FHA Streamline is available only to homeowners who currently have an FHA mortgage loan. The same is true for the VA’s IRRRL; it’s only available to a VA mortgagee. 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 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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