Should I Refinance My Mortgage?

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Refinancing is a good idea when Mortgage interest rates are currently pretty good, and that means that it might be time to think about refinancing your current mortgage loan. Below, we are going to highlight some of the benefits of refinancing your loan.

Should I refinance my mortgage | USA Mortgage

Refinancing: High-Interest Rates

If your current interest rate seems like it might be high for the current market, definitely check with a loan officer and see what you could lower your interest rate too.

Rates this year have been at an all-time low for the past few years, so it is definitely worth checking your current interest rate if you aren’t sure what it is. Usually, it makes sense to refinance your mortgage if you can lower your rate by a full percentage point or more. There are a lot of factors that go into getting the best rate available, including your credit score, loan program, and debt-to-income ratio. 

Refinancing: Removing Private Mortgage Insurance

If you are paying PMI (private mortgage insurance) on an FHA or Conventional loan, you can look into refinancing to buy out of the PMI. This will remove the PMI from your loan payments, and free up your monthly income for other things. If you put less than 20% down on a Conventional mortgage when you initially took out the loan, then you would have PMI. For FHA, if it’s been less than 11 years since you took out the loan, then you would also have PMI.

Refinancing: Streamline Loans

If you currently have an FHA, USDA, or VA loan, you might be eligible to refinance it into one of their streamline programs. These are only available for these loan types, and typically require less documentation than the previous loan. They also can be eligible for a drive-by appraisal, which is an especially nice benefit in the wake of COVID-19. This would allow for an appraiser to assess your home from the exterior, and no one would have to come inside.

Refinancing: Built-Up Equity

If you have some equity in your mortgage loan (this means you currently owe less than what your home is worth), then you can sometimes do a cash-out refinance. This would give you a lump sum of cash at closing that can be used to pay off other debts, such as credit cards, installments, etc., or, you can also decide to upgrade or make repairs to your property. There are different kinds of cash-out refinance options, so make sure you talk to your loan officer and let them know what you would want to use the cash for.

Refinancing: ARM vs. Fixed Rate Loans

If you currently have an Adjustable Rate Mortgage (ARM), then your interest rate is set for a certain period, and once that period ends, it adjusts at set intervals. For example, a 5/1 ARM would have a set interest rate for the first 5 years, and at the end of the 5 years adjust to a new rate on an annual basis for the life of the loan. ARMs typically have a lower initial interest rate than a fixed-rate mortgage, because you are taking on the risk of the rate increases after the first term ends. Now is a great time to look at refinancing an ARM into a fixed-rate mortgage. With interest rates as low as they are, the initial ARM rates are not as competitive, and you can lock into a low rate for the life of the loan with no adjustments.

A lot of the time refinances require less documents than the previous mortgage loan, since you have already been approved in the past. It depends on the loan program, and what you are eligible for. Something else that refinances sometimes offers are Property Inspection Waivers, or PIWs. This is a document that is signed in place of an appraisal being done, which can make the file able to close sooner, and takes the fee of the appraisal out of the loan. Every loan is different and completely dependent on the borrower’s personal financial situation, but if any of these benefits seem like they might apply to you, reach out to a loan officer today to see what they can do for you. Even if you aren’t sure if any of them do, it never hurts to have them run some scenarios with you. Refinancing is all about saving you money in the long run, and freeing you up to meet your other financial goals.

Michael Vanella

About Michael Vanella

Mortgage Banker at USA Mortgage Home Loans