Refinancing – Everything you Need to Know
Refinancing your mortgage is a great way to save money or get money from your home’s equity. At Total Lending Concepts, we’ll help you decide if refinancing makes sense and which program is the best fit. Whether you own a primary residence, investment property, or second home, there are refinancing programs for everyone.
Read the guide below to learn all about refinancing to decide if it’s right for you.
What Does Refinancing Mean?
When you refinance, you pay off your original mortgage with a new mortgage. There are many reasons to refinance, including:
- Lowering your interest rate
- Getting a better term, such as refinancing from an ARM to a fixed rate
- Shortening your loan term (30 year to 15 year)
- Tapping into your home’s equity (the difference between your home value and your loan amount)
The reason you’re refinancing will determine which refinance program suits you. Like your purchase mortgage, you’ll need to qualify for the loan, which we discuss below.
Your Refinancing Options
Just like when you bought your home, there are many loan programs available. Your credit score, loan-to-value ratio, and current loan program determine which refinancing option you choose.
Here are the most common choices.
Conventional, FHA, VA, or USDA Rate/Term Refinance
Choose a rate/term refinance when you want to take advantage of lower rates or you improved your qualifying factors and qualify for a lower rate now.
With the rate/term refinance you can only refinance the outstanding principal balance – you can’t take cash out of your home’s equity. It’s commonly used when interest rates drop or for borrowers who want to decrease their loan term from a 30-year to a 15-year or any other shorter term.
Conventional, FHA, VA, or USDA Cash-Out Refinance
If you have equity in your home and need it, a cash-out refinance will help. Most cash-out refinance options allow you to borrow up to 80% of the home’s current value, except for the VA loan which may allow more.
Borrowers use home equity to pay off high-interest credit card debt, renovate their home, or pay other large expenses. You don’t need to prove your reason for using the proceeds unless you have a high debt-to-income ratio and are using the funds to pay off your debt.
Streamline Refinance – FHA, VA, or USDA
If you have a government-backed loan, you may use their streamline refinance program. All three government agencies offer this option.
The streamline program doesn’t require extensive qualifying requirements and they don’t check things like your income, assets, or credit score. Many borrowers use this option when they’re upside down on their home (owe more than the home is worth) but want to take advantage of lower rates or a better term.
Are you thinking about refinancing? Whether you have a conventional loan or a government-backed loan, we have options to help you save money, tap into your home’s equity, and get the most affordable solution for your home.