Home Refinance Loans
There are two (2) types of home refinance loans: (1) Rate and Term Refi, and (2) Home Equity Loan, also referred to as a Texas Cash Out Loan. We are going to outline the basics of a Rate and Term refinance transaction here.
Should I refinance my current mortgage? This is the question that most homeowners ask themselves. With interest rates at its historic low levels, it is easy to understand why homeowners feel like it is a great time to refinance their existing mortgage. There are several factors that a homeowner should consider before pulling the trigger and refinance. Some of the factors are:
Cost– Every transaction has a cost associated with it, refinancing your mortgage is not any different from purchasing a home, when it comes to costs. Closing costs are hard costs to be incurred in doing the loan.
There’s a Lender closing cost and Title Company closing costs, respectively. Lenders typically charge their closing costs to cover the overhead expenses involve in a refinance transaction. Processing fee, Underwriting fee, and Closing document preparation charges are standard closing cost fees charged by the lender. Title Company also has their hard costs of doing business. Escrow fee, closing fee, recording fee, courier fee, survey and title policy fee, are examples of the fees that Title Company charges. An appraisal is required on a typical transaction, which neither the Lender nor the Title Company gets. The appraiser who appraises the property gets this fee. Common misconception by the borrower is that the lender gets this fee; where indeed, it is paid to the appraiser on the borrower’s behalf.
Term – Refinancing a mortgage loan in a shorter term builds equity faster. As a consequence, the monthly payment increases. A homeowner should find the balance between the term and the interest rate before they decide if refinancing a favorable option for them. Inversely, refinancing for a longer term lowers the monthly payment. Homeowners whose objective is to lower their monthly payment should go for this option if that is ultimately their goal. Downside to this is the reverse of equity builder; it will take longer to build equity in the home.
Interest – Interest rate is primarily the reason why homeowners refinance their current mortgage. Due to the interest rates at its lowest level ever, more and more homeowners are refinancing. This is well and good, especially for homeowners who presently have an Adjustable Rate Mortgage or an ARM. They can elect to convert an ARM to a Fixed Interest Rate Mortgage and have the peace of mind knowing their monthly payment will not change throughout the life of the loan.
Monthly Payment – The bottom line on most homeowner is the monthly payment. Ultimately, “how much will I pay every month?”, is the factor that dictates whether the current mortgage loan should be refinanced or not. Affordability on part of the home owner decides everything. After all, it doesn’t make sense to opt for the equity builder or a shorter term mortgage loan if the borrower cannot afford the monthly payment in the first place.
Length of time to recoup – Knowing the hard costs associated with every refinance transaction is one thing. Understanding how long will it take to recoup that cost is another. If the borrower is not going to keep the house long enough to regain it, then there is no advantange in refinancing at all. The cost to be incurred should be considered along with the length of time to recover such costs to compensate and justify the transaction.
The Home Loan Specialists at Gold Financial Services can offer a personalize, confidential consultation to determine if refinancing is the right step for the home owner. We do a needs based analysis of your goal and situation in order to determine a net tangible benefit for each transaction. For additional information call us at 281-802-4665.