The
refinancing loan can help:
- Consolidation
of unwanted bills whose combined payment outstrip cash flow.
- Cash
need for college tuition, medical expenses, personal needs, repair
and renovation, car payoffs, new car purchases, build a line of credit.
- Refinancing
your home to take advantage of currently lower rates and reduce your
monthly payments with or without longer payback schedule
- Loans
which could be better handled on longer payback schedules with lower
monthly payments.
New
home purchases.
Owning
a home is an American Dream. MBI
helps people reach that dream.
We are
committed to educating and making the process of buying a home very
simple. We understand that purchasing a home involves a major decision
process. We’re here to help you select the right type of loan for
you to help you make the right choices.
Our loan
programs offer a very wide variety of mortgage programs suited to your
individual needs.
With our
experience, expertise, and diverse product line.
A
Consumer's Guide To Refinancing Your Mortgage.
If you
are a homeowner who was lucky enough to buy when mortgage rates were
low, you may have no interest in refinancing your present loan. But
perhaps you bought your home when rates were higher. Or perhaps you
have an adjustable rate loan and would like to obtain different terms.
Should
you refinance? This website will answer some questions that may help
you decide. If you do refinance, the process will remind you of what
you went through in obtaining the original mortgage. That's because,
in reality, refinancing a mortgage is simply taking out a new mortgage.
You will encounter many of the same procedures and the same types of
costs-the second time around.
Would
Refinancing Be Worth It?
Refinancing
can be worth while, but it does not make good financial sense for everyone.
A general rule is that refinancing becomes worth your while if the current
interest rate on your mortgage is at least two percentage points higher
than the prevailing market rate. this figure is generally accepted as
the safe margin when balancing the costs of refinancing a mortgage against
the savings.
There are
other considerations, too, such as how long you plan to stay in the
house. Most sources say that it takes at least three years to realize
fully the savings from a lower interest rate, given the costs of the
refinancing. (Depending on your loan amount and the particular circumstances,
however, you might choose to refinance a loan that is only 1.5 percentage
points higher then the current rate. You may even find you could recoup
the refinancing costs in a shorter time.)
Refinancing
can be a good idea for homeowners who:
- Want
to get out of a high interest rate loan to take advantage of lower
rates. This is a good idea only if you intend to stay in the house
long enough to make the additional fees worthwhile.
- Have
an adjustable rate mortgage (ARM) and want a fixed-rate loan to have
the certainty of knowing exactly what the mortgage payment will be
for the life of the loan.
- Want
to convert to an ARM with a lower interest rate or more protective
features (such as a better rate and payment caps) than the ARM they
currently have.
- Want
to build up equity more quickly by converting to a loan with a shorter
term.
- Want
to draw on the equity built up in their house to get cash for a major
purchase or for their children's education.
Should
You Refinance Your ARM?
In deciding
whether to refinance an ARM
you should consider these questions:
- Is the
next interest rate adjustment on your existing loan likely to increase
your monthly payments substantially? Will the new interest rate be
two or three percentage points higher than the prevailing rates being
offered for either fixed-rate loans or other ARMs?
- If the
current mortgage sets a cap on your monthly payments, are those payments
large enough to pay off your loan by the end of the original term?
Will refinancing a new ARM or a fixed-rate enable you to pay your
loan in full by the end of the term?
What
Are The Costs of Refinancing?
The fees
described below are the charges that you most likely to encounter in
a refinancing.
- Application
Fees
This charge imposed by your lender covers the initial costs of processing
you loan request and checking your credit report.
- Title
Search and Title Insurance
This charge will cover the cost of examining the public record to
confirm ownership of the real estate. It also covers the cost of a
policy, usually issued by a title insurance company, that insures
the policy holder in a specific amount for any loss caused by discrepancies
in the title to the property. Be sure to ask the company carrying
the present policy if it can re-issue your policy at a re-issue rate.
You could save up to 70 percent of what it would cost you for a new
policy.
- Lender's
Attorney's Review Fees
The lender will usually charge you for fees paid to the lawyer or
company that conducts the closing for the lender. Settlements are
conducted by lending institutions, title insurance companies, escrow
companies, real estate brokers, and attorneys for the buyer and seller.
In most situations, the person conducting the settlement is providing
a service to the lender. You may want to retain your own attorney
to represent you at all stages of the transaction, including settlement.
- Loan
Origination Fees and Discount Points
The origination fee is charged for the lender's work in evaluating
and preparing your mortgage loan. Discount points are prepaid finance
charges imposed by the lender at closing to increase the lender's
yield beyond the stated interest rate on the mortgage note. One point
equals one percent of the loan amount. For example, one point on a
$75,000 loan would be $750. In some cases, the points you pay can
be financed by adding them to the loan amount. The total number of
points a lender charges will depend on market conditions and the interest
rate to be charged.
- Appraisal
Fee
This fee pays for an appraisal which is a supportable and defensible
estimate or opinion of the value of the property.
- Prepayment
Penalty
A prepayment penalty on your present mortgage could be the greatest
determent to refinancing. The practice of charging money for an early
pay-off of the existing mortgage loan varies be state, type of lender,
and type of loan. Prepayment penalties are forbidden on various loan
including loan from federally chartered credit unions, FHA and VA
loans, and some other home-purchase loans. The mortgage documents
for your existing loan will state if there is a penalty for prepayment.
In some loans, you may be charged interest for the full month in which
your prepay your loan.
- Miscellaneous
Depending on the type of loan you have and other factors, another
major expense you might face is the fee for a VA loan guarantee, FHA
mortgage insurance, or private mortgage insurance. There are a few
other closing costs in addition to these.
The
most common reason to refinance is to take advantage of lower interest
rates (and thereby save on mortgage costs).
There
are other reasons why you might want to refinance. If you are uncertain
about your goals, read through the refinance reasons to see if any apply
to you.
Why
Would You Want to Refinance?
Well, there are a number of reasons to
consider benefits of refinancing:
- Reduce
total interest costs
- Reduce
monthly payments and reduce your risk
- Pay
off your loan faster
Use
your home equity to borrow more
You
should be clear about your refinancing goal because refinancing can
change a number of things about your mortgage (e.g., monthly payments,
risk of changing payments with interest rate changes, time to repay
your mortgage). It is important to know your reason(s) to refinance
so that you can decide if the changes will achieve your goal.
For
example, if you want to reduce your monthly payments, there are a number
of options for this. Some ways, such as extending your repayment period
with a new mortgage, may actually increase your total interest costs,
even though they reduce your monthly payments.
As
another example, you can often reduce your interest costs by getting
a shorter term loan (like a 15 year mortgage). But 15 year mortgages
have higher monthly payments than 30 year mortgages—again a tradeoff
Homeowners
refinance for many reasons. Before you decide if and when to refinance
your mortgage, you should consider the following:
- your
reasons for refinancing.
- the
interest rate of the existing mortgage.
- the
interest rate of the new mortgage.
- the
cost of refinancing.
- how
much equity you have built up in your home.
- your
current income and credit status.
To
Get a Lower-Interest-Rate Mortgage
One of
the main reasons homeowners refinance their mortgages is to take advantage
of lower interest rates. For example, suppose you have a fixed-rate
mortgage, but interest rates have declined since you first obtained
your loan. You may find that now you can get a new loan at a lower rate
of interest. You can reduce your monthly payments when you refinance
from a higher rate loan to one with a lower rate. If you plan to remain
in your home for several years, the savings you will realize in the
form of a lower monthly mortgage payment could justify the costs of
refinancing your home.
To
Build Equity Faster
Many homeowners
want to build the equity in their homes more quickly and choose to refinance
from a longer term mortgage to one with a shorter term. That’s
because each month a certain part of your payment goes to the interest
expense on your loan, with the remainder being applied against the principal,
or loan balance. With shorter term loans, a greater percentage of your
monthly payment goes to the principal. For example, if you currently
have a 30-year fixed-rate loan, you might consider refinancing to a
10-, 15-, or 20-year loan, which will lower the total amount of interest
you will pay over the life of the loan and speed up the growth of equity
in your home.
To
Switch from an Adjustable-Rate Loan to a Fixed-Rate Loan
During
those times when interest rates are higher, homeowners often choose
adjustable-rate mortgages, which traditionally offer lower interest
rates during the early years of the loan than fixed-rate loans. When
rates come down, you may want to refinance to a fixed-rate loan, which
provides the stability and predictability of knowing exactly what your
mortgage payment will be for the life of the loan.
To
Switch from a Fixed-Rate Loan to an Adjustable-Rate Loan
There are
instances when a homeowner may wish to refinance from a fixed-rate
to an adjustable-rate mortgage (ARM). For example, if you feel constrained
by the expenses of your current mortgage, you could refinance to an
ARM to gain the benefits of lower payments. Remember, however, that
the interest rate on an ARM can increase at its periodic reset date,
which means that your reduction in monthly payment amount may only be
for a limited time. However, if you plan to live in your home for only
a short time and then sell, refinancing from a fixed-rate to an adjustable-rate
mortgage may make sense.
To
Draw on the Equity Already Built Up in Your Home
Through
what is often referred to as a “cash-out” refinance, you can
tap the equity that has accumulated in your home to pay for expenses
such as the education of your children and home improvements. For example,
if your home is now valued at $150,000 and your loan balance is $80,000,
you might be able to get a new $112,500 mortgage (cash-out refinances
generally are limited to 75 percent of the total value of your home).
That would allow you to repay the existing $80,000 balance and use the
$32,500 for other financial needs.
Refinancing
is getting a new mortgage to replace your first or second mortgage.