Refinancing FAQs

A refinance occurs when the terms of a loan change: rate, term, payment schedule, etc. The customer applies to change the terms and if approved the loan is refinanced. The lender will reassess the customer’s credit and repayment ability and either approve or deny the refinance request.

People refinance loans for many reasons. They may need extra funds to pay for a child’s education or to pay for home renovations. The interest rates may have dropped lower than their current rate, so they want to take advantage of the lower interest rates. They may want to extend or compress the term of their loan.

When mortgage rates go down and the client applies to refinance to get only the lower rate or if the client applies to get a different loan term. There is no cash advance with this type of refinance. Only the mortgage rate or term of the loan change.

This type of refinance is based on the equity in your property. Your home builds equity over time and as you pay down your mortgage the more of your home you own outright grows, i.e. your equity increases. When you do a Cash Out Refinance you borrow the current equity value of the property (which is more than you owe) from the bank. The new loan pays off the old loan and the remaining funds can help you pay off debt, consolidate payments, invest in home projects, or other large investments.

A VA Cash Out Refinance is just like a conventional Cash Out Refinance except that it is specifically for those with a current VA loan. It is refinancing a current VA loan into a new VA loan to take out the extra equity in your home as cash. The biggest difference with a VA Cash Out Refinance and a Conventional Cash Out Refinance is that VA loans can borrow up to 100% of the home’s value without incurring mortgage insurance while Conventional Cash Out will only allow you to borrow up to 80% of a home’s value.

A Cash Out Refinance provides you with a lump sum of money when the loan closes after the balance of the previous loan is paid. The excess proceeds are available for you to use as you please. A HELOC is a revolving line of credit which allows you to borrow off the equity in your home multiple times instead of just once. With a HELOC you borrow against the equity of your home, pay down the loan, and then borrow again as needed.

HELOCs offer long-term access to the extra funds you need while a Cash Out Refinance only provides you with one lump sum of money at one time. However, the rates for a HELOC are usually not locked in and will fluctuate with market rates while fixed rate mortgages have a rate that is locked in for the life of the loan.

An IRRRL mortgage refinance loan is an Interest Rate Reduction Refinancing Loan or VA Streamline Loan. It is only used with existing VA loans to refinance them to reduce the interest rate or to refinance adjustable-rate mortgages (ARMs) to a fixed rate. IRRRL Refinances can only be used on existing first mortgages. No other owned properties are eligible.

You cannot access cash through equity on an IRRRL.

In the beginning refinancing may lower your credit score slightly, but it can help raise your credit score over time. Refinancing can significantly lower your amount of debt and your monthly payments which the credit bureaus consider good things. After the minimal dip of a few points in the first few months, your credit score should bounce back and may even grow since you have lower overall debt and payments.

Typically, it is better to refinance before you have paid off half of your mortgage loan. If you refinance after the halfway point, you will most likely end up paying more on your loan than you originally would have.  At the halfway point is usually where you are paying more to the loan’s principle and less to interest. If you were to refinance, then you would have to begin paying interest again instead of principle which extends the term of the loan and overall raises the cost of the loan.

Though exact details can change based on how you refinance the normal benefits are listed below.

• Lower interest rate (APR)
• Lower monthly payment
• Shorter payoff term
• Potentially eliminating private mortgage insurance (PMI)
• Potentially gaining a lump sum of cash to use

• Potentially greater debt than before
• Small dip in your credit score
• Closing costs
  • Usually range from 0.5% to3% on a refinance. However, in some options, there are $0.00 closing costs as the lender pays them on behalf of the borrower. The closing cost amount can also vary depending on the state the property is located in, the size of the loan amount (some fees are based on a % of that amount), as well as the loan program the client has chosen.