WHAT IS A MORTGAGE REFINANCE?

Reasons to Refinance

1

Switch from an adjustable rate loan to a fixed rate mortgage

2

Change from one adjustable rate loan to another to lower your monthly payment

3

Reduce your interest rate and your monthly payment

4

Build equity faster by shortening the term of your loan

5

Home improvement

6

Debt consolidation

Frequently Asked Questions

How much equity do I need to refinance?

You typically need at least 3% equity to refinance your mortgage. There are programs available to homeowners who either don’t have any equity or have negative equity, meaning their outstanding mortgage balance is higher than their home’s value.

What are the risks of reffinancing?

The most notable risks that come with mortgage refinancing include:

• Losing your home to foreclosure if you go into mortgage default
• Failing to reach the break-even point on your closing costs
• Extending your repayment term and more total interest
• Leveraging your home equity to splurge rather than improving your finances

How long does it take to refinance?

It can take 30 to 45 days to refinance a home. Your lender might take more or less time to close a refinance, depending on how much business they have and whether they use a digital mortgage application process.

Do you pay closing costs on a refinance?

Yes, there are refinance closing costs. These costs range from 2% to 6% of your new loan amount, depending on your loan’s size.

You may qualify for a no-closing-cost refinance, but don’t be fooled by the name. These aren’t “free” refinances — there aren’t upfront costs at closing; you’ll instead pay in the form of a higher interest rate or larger loan amount.

Can I refinance with bad credit?

While it’s more difficult to refinance a mortgage with bad credit, it’s not impossible. For example, you may qualify to refinance an FHA loan with as low as a 500 credit score, provided that you have at least 10% home equity. There’s no minimum credit score required for a VA refinance.

How do reffinance rates differ from purchase rates?

Mortgage refinance rates tend to mirror mortgage purchase rates. However, refinance rates differ from lender to lender, which is why it’s important to shop around and find a rate that’s competitive enough to replace your current mortgage.

Should I pay for mortgage points?

If you’d like to buy down your mortgage rate to save even more on interest and shave a few dollars off your monthly payment amount, it may make sense to pay for mortgage points.

Be mindful that each point costs up to 1% of your loan amount. On a $250,000 mortgage, one point would cost you $2,500 at the closing table.

Should I pay for mortgage points?

1

Figure out your "why" for refinancing. Do you want a lower mortgage rate? Can you afford a higher monthly payment and shorter loan term and higher monthly payment? Are you ready to borrow from your home equity?

2

Gauge your financial health. Pull your credit reports and scores. Review your history for errors and file disputes where necessary. You should also have more than enough cash reserves to cover your refinance closing costs, which can range from 2% to 6% of your loan amount.

3

Shop around and apply. Pick your three to five refi lenders and fill out applications with each. Complete those apps within a 14-day time frame to minimize the temporary hit to your credit score from hard inquiries.

4

Lock in your mortgage rate. Once you’ve committed to a lender, get a mortgage rate lock to secure the interest rate you were quoted.

5

Close on your refinance. Work with your lender to finalize your refinance, submit any outstanding paperwork and schedule your closing day.