Refinancing replaces your current mortgage with a new one, to change your rate or term, take cash out, drop mortgage insurance, or move from an adjustable rate to a fixed rate. The main options are a rate-and-term refinance, a cash-out refinance, and streamline refinances for existing FHA and VA loans. Homeowners 62 and older can also refinance into a reverse mortgage. Every refinance has closing costs, so the key question is how long it takes for the benefit to pay back those costs, and whether you'll keep the loan that long.
There's an old line in this business: "Marry the house, date the rate." It's a little cute for my taste, but it gets at something true. The loan you have today doesn't have to be the loan you keep forever.
That said, refinancing isn't free, and it isn't always smart. Sometimes the right answer is to leave a good loan alone. Here's how to tell whether a refinance makes sense for you, which kind fits, and what it costs.
You replace your loan with a new one to change the rate, the term, or both, without taking out extra cash beyond small amounts allowed by the guidelines. This is the most common refinance, and it usually gets the best pricing.
You borrow more than you owe and take the difference in cash at closing. Cash-out refinances generally require more equity than a rate-and-term refinance and can price a little higher. There are also rules about how long you need to have owned the home first.
Before you take cash out, compare it with a home equity loan or HELOC, which leaves your first mortgage alone. If your current rate is low, that can matter a lot. See Home Equity and HELOC.
If you already have an FHA loan, a streamline refinance may lower your payment with less paperwork. It generally doesn't require a new appraisal, but it does require a real benefit to you, such as a lower combined rate and mortgage insurance payment, and you must have made a certain number of on-time payments first. We offer FHA streamline refinances. See FHA Loans.
If you have a VA loan, the IRRRL is VA's streamline refinance. It's meant to lower your rate or move you from an adjustable rate to a fixed rate. We offer the IRRRL, and VA cash-out refinances too. Our VA lenders don't require an appraisal on an IRRRL, and VA generally doesn't require income documentation. There are rules about how long you must wait after your current loan and how quickly the savings must cover the costs. See VA Loans.
You can refinance any loan type into a conventional loan if you meet the guidelines. This is the usual way to drop FHA mortgage insurance once you have enough equity. See Conventional Loans.
If your loan is above the conforming limit for your county, you'll refinance into a jumbo loan, with its own lender guidelines. See Jumbo Loans.
If you're 62 or older and still have a mortgage payment, a HECM reverse mortgage can pay off your current loan. There are no required monthly mortgage payments afterward. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms.
Depending on your age and home value, there may also be money left over as a line of credit, monthly payouts, or a lump sum. It isn't right for everyone, and it costs more upfront than most refinances, so it fits best when you plan to stay in your home for many years. See Reverse Mortgages, How a Reverse Mortgage Works, and Reverse Mortgage Pros and Cons.
If you already have a reverse mortgage, see Reverse Mortgage Refinance.
Here's the question I ask everyone first: how long will you keep this loan?
The math is simple in words:
Two more things to watch:
I'll run this with your real numbers and tell you plainly if it doesn't pay.
Lenders look at four main things:
An appraisal is usually needed, except on many streamline refinances.
Refinance closing costs usually include lender fees, appraisal, title insurance, escrow or settlement fees, recording fees, and prepaid items like interest and escrow deposits. You can usually pay them in cash, roll them into the loan, or take a slightly higher rate in exchange for a lender credit.
You'll get a Loan Estimate within 3 business days of applying. For a refinance of your primary home with a new lender, you generally have 3 business days after closing to cancel, which is called the right of rescission.
You may have come here looking for the Home Affordable Refinance Program (HARP). HARP was a federal program for borrowers with little or no equity, and it ended on December 31, 2018. If you're underwater or close to it today, we can still look at your options, including FHA or VA streamline refinances if you already have one of those loans.
It depends on the loan type and the kind of refinance. Streamline and cash-out refinances have waiting periods. Rate-and-term refinances are often possible sooner.
Applying causes a credit inquiry, which can lower your score slightly for a short time. Shopping several lenders within a short window is generally treated as one inquiry for scoring.
Sometimes. FHA and VA streamline refinances may not require an appraisal. HARP has ended, but ask us about your options.
Yes. Refinancing into a new loan in your name alone is the usual way to remove a former spouse or co-borrower, as long as you can meet the guidelines on your own income and credit.
If you can comfortably afford the higher payment, a 15-year loan can save a lot of interest. See 15-Year Fixed-Rate Mortgage.
It depends on your income, how long you'll stay, and whether you want a monthly payment in retirement. We'll compare both. See Reverse Mortgages.
Get a rate quote, book a call, or call us at 530-888-6000. Tell us your current rate, balance, and goal, and we'll tell you honestly whether a refinance makes sense.
