SayLending.com

To Find a Better Rate

The key reason why home owners refinance their mortgage is to lower their current rate.

Your new rate should be 1-2 points lower than your current rate in order to break-even on home refinancing costs.

Also, the length you plan to stay in your home after you refinance should be an additional 5-7 years in order to benefit.

If you sell your home before then, you may not break even considering the costs to refinance.

calc: break-even point on refinancing
calc: compare mortgage refi terms

What Are Refinancing Costs?

Costs include:

• orgination fees,
• closing costs,
• appraisal fees,
• title and registration fees,
• and other lender fees.

Some of these costs may be waived or reduced depending on your application and lender.

Be sure to shop your refi application. Pay particular attention to quoted refi and closing costs.

Many lenders will tack closing costs onto your loan request so that you will have zero out-of-pocket costs associated with home refinancing

Example: let's say that you refinance your current mortgage loan balance of $100,000.

Total refinancing costs are estimated to be $2,500. To avoid out-of-pocket costs, the lender will tack on the $2,500 fee to your refinance loan amount. So your new mortgage loan balance will be $102,500 when you close on your loan.

That is why your refi interest rate must be 1-2 points lower than your current rate in order to recoup the costs of refinancing.

 

shop lenders within our network for the best refinancing mortgage plan

Many homeowners are refinancing to get into a more stable, fixed rate mortgage loan

Homeowners with payment-risk mortgages such as adjustables, interest-only, minimum payments, and other high-risk mortgages will refinance into more stable, fixed-rate mortgage loan.

For Those with Payment-Risk Loans

Homeowners with interest-only loans or minimum payment plans run the risk of negative loan payoff. Refinancing your mortgage can protect your mortgage investment and avoid foreclosure.

View our mortgage loan center for information about payment-risk mortgage:

view payment-risk mortgage: interest only
view payment-risk mortgage: minimum payment
view payment-risk mortgage: ARMs

 

shop lenders within our network for the best refinancing mortgage plan

Some homeowners will refinance to lower their repayment terms from 30-year to 15-year or lower

These homeowners may have change in their financial position where they can afford a bigger mortgage payment.

Example:
mortgage rates on 15-year mortgages are generally lower than 30-year mortgages. The monthly payment will increase, but the homeowner will be able to payoff their mortgage quicker and save thousands in interest.

15-Year  30-Year Mortgage Amount: $100,000 $100,000 Interest Rate (APR):  7.50%   8.00%  Monthly Payment:  $927.01 $733.76 Number of Payments:  180  360 Total Money Spent: $166, 862 $246,149 Total Interest Paid:  $66,862  $164,149

Consider pre-paying your mortgage instead:

To avoid refinancing costs, you can prepay your mortgage by the same mortage loan difference and payoff your loan in about the same time.

Example:
Let's say your refinancing costs are $3,500. You pay zero out-of-pocket costs, so your refinancing amount is $103,500.

You new monthly payment is $964.09 under a 15-year term. The difference between your new refinancing payment and existing payment is $230.33.

If you prepay the $230.33 each month on your existing mortgage loan, you can pay off your loan in less time and at less total costs than if you had refinanced.

15-Year  30-Year Mortgage Amount: $103,500 $100,000 Interest Rate (APR):  7.50%   8.00%  Monthly Payment:  $964.09 $733.76 Extra Monthly Paymenet: $0 $230.33 Number of Payments:  180  177 Total Money Spent: $173,537 $170,635 Total Interest Paid:  $70,205  $70,635

The pre-pay benefit depends on the rate and closing costs

On the other hand, if your refinancing costs were only $2,500 for the same rate and terms, the prepay amount of $216.43 will not give you a faster payoff time and lower total costs.

In this example, it would benefit you to refinance if you plan to remain in the home for a period of time.

15-Year  30-Year Mortgage Amount: $102,500 $100,000 Interest Rate (APR):  7.50%   8.00%  Monthly Payment:  $950.19 $733.76 Extra Monthly Paymenet: $0 $216.43 Number of Payments:  180  182 Total Money Spent: $171,034 $172,943 Total Interest Paid:  $68,534  $72,943

 

You might consider our FAST mortgage payoff program

If you looking to refinance your home to reduce the number of repayments, you might consider using our FAST mortgage payoff program.

The program does not require any change in your mortgage or income position. You simple change the way to manage your money to maximize mortgage payoff benefits.

View our mortgage payoff module for information.

Many homeowners will refinance to get cash out

Cash-out refinancing simple means you take the equity value in your home and refinance your mortgage up to 80% or lower based on the equity value of your home.

The cash difference is then given to the homeowner to be used for any purpose they want.

Example of cash out amounts

If the home mortgage to be refinanced is at $100,000, and the home value is estimated to be $200,000, the homeowner can cash-out up to 80%LTV minus the refinanced amount.

$160,000 ($200,000 X 80%)
minus refi amount ($100,000)
=
$60,000 is available for cash

estimate your borrowing value

You can borrow more than 80% LTV

If the 80%LTV rule doesn't give you enough cash, you can refinanced at 90%LTV and in some cases, 95%LTV.

But understand that your total equity value in your home is below the 20% required for home mortgage loans. You will then need to apply for Private Mortgage Insurance (PMI) in order to get cash-out greater than 80%LTV.

The monthly cost for PMI may defeat your refinancing benefit.

More information about PMI

Another option to consider is a home equity loan

You can get cash out of your home using a home equity loan instead of refinancing. The advantage is the most lenders pay for all closing costs on home equity loans.

The disadvantage is that home equity loan are slightly higher interest rates than refinancing rates.

You must calculate the difference in rate and refi cost to determine best benefit.