There’s a lot of buzz about refinancing in the news lately, what with lower interest rates and a relatively stable housing market. Homeowners may be wondering if it’s an opportunity to pursue or to swat away, so let’s look at the whys and hows of refinancing your mortgage and if a cash-out-refinance is for you.
Refinancing requires replacing your current mortgage with a new loan, meaning the process is similar to what you went through to purchase your home originally. There are typically four main reasons to refinance that include:
The most popular current option for refinancing is to take cash out of the home’s equity. When the value of the property has increased and/or the rates have dropped, homeowners can take the difference between the new loan and the home’s appraised value as “cash out.” The benefits vary from borrower to borrower, but it’s often an excellent way to consolidate debt or re-invest into the home by remodeling or improving its value. The proceeds are tax-free which adds to the appeal of this option. For more information, read here.
If the current interest rates are lower than when the home was first purchased, then refinancing can reduce the monthly payment, freeing up more income for savings or other needs. In addition, refinancing can eliminate mortgage insurance that may have been required on the original loan, putting even more money in your pocket each month.
Adjustable rate mortgages mean monthly payments can go up or down, depending on interest rates. Homeowners who seek the security of a fixed rate may want to refinance with that objective in mind. Even if the difference isn’t significantly noticeable, the long-term peace of mind is.
Another long-view advantage of refinancing is to shorten the term of the loan from a 30-year to a 25, 20 or 15-year mortgage. While the monthly payment will probably be higher, you’ll garner a better interest rate, resulting in more equity in the home and a bigger reduction of the overall life of the debt. This ultimately puts you on track to pay off the mortgage while still owning your home!
Another reason to refinance your home is to be able to get rid of your PMI, or private mortgage insurance. To do this, you have to have at least 20% equity in your home. When you reach that 20%, you can ask your lender to cancel that PMI. The secret here is that you can be gaining equity in your home before you’ve actually paid a full 20% of your home’s mortgage. How? Just by the appreciation of your home value.
If you have your home appraised and find that the appraisal value is higher than when you bought the home–that’s equity. And homes–especially in today’s booming real estate market–are rising in value fast. Getting an appraisal and finding out if you can get rid of that PMI is a no-brainer.
Other ways you can get rid of your PMI even if you haven’t had your home’s value go up enough to hit 20% is to begin to pay more on your mortgage every month. Because of the fact that much of what you’re paying on your mortgage up front is interest, if you overpay your mortgage, even by $50 a month, then that money goes straight to the principal, which means equity. It may not seem like a quick fix, but it adds up quicker than you think.
Also, to cancel your PMI, you must:
Just as when you originally purchased your home, a lender will look at several factors for approval. Refinancing can often be a smoother process, but your credit score will still be considered, as well as your debt-to-income ratio (DTI). Depending on the lender and the type of loan, a DTI of 50% or lower is ideal. This means that your monthly income should be at least double your monthly debts, including mortgage payment. EnTrust Funding can work with homeowners with as low as 500 FICO score.
Having an idea of your home’s worth before starting the process will give you the confidence to proceed. If neighborhood values have increased and you’ve been steadily building equity in your home, then refinancing could be an easy decision. Most lenders require at least one year in the home before refinancing an existing mortgage.
With the housing market and interest rates in constant motion, it’s a good idea to look at your personal finances and needs. At EnTrust Funding (ETF), we have a team of lending experts and a variety of programs for all types of homeowners. With a simple conversation we can help you determine the why and how of your refinancing opportunities. Give ETF a call today for all the answers.
Cash out to start that remodel you’ve always wanted to do! Thinking about taking cash out of your home? EnTrust Funding has the program to fit your needs.
Quality for low down payments (typically for first-time buyers). You may qualify to refinance and remove the PMI payment.
VA Loans offered to active military and veterans (or their surviving spouses). If eligible, qualify for 100% financing or $0 down.
Refinance your home today. Obtain a low interest fixed rate home loan to lower your payments!
Our experienced and knowledgeable refinance mortgage professionals are ready to help you refinance and take cash out from your home. There are a number of reasons why you might consider refinancing your home loan, especially as we face the uncertainties of a global pandemic and accompanying recession.
As a homeowner, it is possible for you to use your home as an additional lifeline to help ride out these uncertain times. The answer for how you do this is by refinancing your home mortgage, as you can secure a lower interest rate, shorten the term of your loan or reduce your monthly payment. Any one of these moves can potentially help you stay ahead of what may come.
We can help you to understand your options and determine if this is the right time for you to refinance a home mortgage to save you money and help you to achieve the goals you’ve set for your finances. By going through all of the refinance programs, we will help you feel confident in your decision to refinance and take cash out. At times in life, a cash out refinance is the right move for your financial future.
At EnTrust Funding, our refinance mortgage professionals will determine how much equity is needed to refinance your home and whether or not a refinance mortgage with cash out is an option for you. In some cases, you might eligible for an FHA cash-out refinance or, if you are a veteran or actively in the military, a VA streamline refinance cash out instead of a conventional loan.
Contact us, and we can share more with you about FHA cash out refinancing and VA loan refinance cash out during the pandemic.