— A Refinancing Guide For Homeowners —
How To Refinance Your Home
by Chris Brown, President, CB Investments
27 March 2017
Refinancing is the process of obtaining a new mortgage loan to reduce your monthly payments or take cash out for purchases.
Refinancing is the process of obtaining a new mortgage loan in an effort to reduce monthly payments, lower your interest rates, take cash out of your home for large purchases, or change mortgage companies. Most people refinance when they have equity in their home, which is the difference between the amount owed to the mortgage company and the worth of the home.
When you refinance your mortgage, you have two options: You can refinance your existing loan to a new loan with a new rate and term to lower your monthly payment (Rate & Term Refinance), or you can take out above and beyond what you owe on your current mortgage to put some extra cash in your pocket (Cash-out Refinance). Of course, if you do opt to take cash from your home, your loan balance will be greater and your monthly payment will likely increase.
Homeowners can use rate & term refinancing to save money, and cash-out refinancing to get money back.
Reasons To Refinance
People refinance their mortgages for all sorts of reasons — including lowering their monthly payment, getting better refinance rates, taking cash out of their home, shortening their loan term, or a combination of the above.
Reasons for rate & term (traditional) refinance may include:
- Lowering your interest rate
- Lowering your monthly payment
- Adjusting your loan term
- Converting from a variable rate to a fixed rate
Reasons for cash-out refinance may include:
- Paying off credit card debt
- Purchasing a car
- Making home improvements/repairs
- Paying for college expenses
- Creating an emergency fund
Americans withdrew $31 billion of home equity in 2016.
There are many reasons why you may want to refinance your VA loan or your FHA loan. Reasons for refinancing your VA loan into another VA loan are very similar to a regular mortgage refinance — you want to get a lower rate, lower your monthly payment, cash out some of your equity, or change your loan term.
For those looking to refinance their FHA loan, the main reason to do so is to drop private mortgage insurance, or PMI. Since FHA loans require just a 3.5 percent down payment, lenders charge private mortgage insurance to mitigate risk. Once your have 20 percent equity in your home (whether by paying down your loan, home prices increasing, or a combination of both), you can refinance your FHA loan into a new FHA loan (known as a FHA Streamline Refinance) to obtain a lower interest rate and monthly payment.
Refinancing your mortgage could help your family save money or put extra cash in your pocket for anything you need.
To refinance your mortgage you will need the following:
- Your identity: Social security card, photo ID
- Your income: Last three pay stubs, W-2s for two previous years
- Your assets: Retirement accounts, investments
- Your debts: Bank statements for two previous months, credit card and loan statements, child support or alimony payments, homeowners insurance, property tax bills
- Your creditworthiness: The lender will pull your credit report
In any economic climate, it can be difficult to make the payments on a home mortgage. Between possible high interest rates and an unstable economy, making mortgage payments may become tougher than you ever expected. Should you find yourself in this situation, it might be time to consider refinancing. Today nearly 40 million homeowners have tappable equity, and in 2016 homeowners withdrew $31 billion, the most since 2006. But before you jump in and cash out, it is important to talk with a real estate finance specialist so you can understand the best possible solution for you.