Requirements to Refinance Your Mortgage

A lower interest rate simply means that you’ll pay less in interest charges over the life of the home loan.

Interest rates are on the rise, but they are still historically low. Throughout the 1970s, interest rates ranged between 7% and 12%. In the 1980s, interest rates reached over 18% before dropping back to a reasonable 7-9% range in the 1990s. Then they hovered around 6% in the 2000s, leading up to the Great Recession.

Today, you can still get interest rates around 5% or under with good credit. If your current mortgage was structured before the 2009 recession, or if your credit has substantially improved since you applied for your current mortgage, you can probably refinance now to get a lower rate. Saving just one percentage point on your interest rate could save thousands of dollars in interest over the term of your loan.

Waiting is what costs most people the opportunity to save. With interest rates on the rise, you’ll want to lock in at today’s more competitive interest rates before the next increase.  It’s important to note that looking at your mortgage debt in a silo is what costs homeowners the most. It’s important to look at your entire debt profile and the monthly costs to service that debt. Many savvy homeowners have freed up hundreds if not thousands in monthly cash flow, simply by looking at better options to manage that cashflow.

Getting a lower interest rate can reduce your monthly mortgage payment, but it’s by no means not the only way to lower your overall monthly payments and improve your monthly cashflow. Looking at your overall debt service is something we recommend to all our clients that are considering refinancing their current mortgage.

For example, your monthly mortgage payment may include escrows or PMI (private mortgage insurance). This is typical for mortgage loans that have less than 20% down payment or equity when they start. However, with the tremendous increase in property values over the past 5 years, you may be able to refinance to eliminate both pre-paid escrows as well as the PMI.

Another thing to consider is you overall monthly payments towards debt. This debt may include high-interest credit card debt that doesn’t get paid in full each month, car loans, leases, second mortgages, HELOCs (home equity line of credit), or other form of consumer debt. Leveraging cash out during a refinance from your equity, even if the interest rate on the refinance is higher than your current rate, you could still lower your overall monthly debt payments by hundreds if not thousands of dollars. Best of all, the interest paid against your mortgage is tax deductible unlike credit cards and other forms of consumer debt.

The great news is you can accomplish your short-term goal of reducing your monthly payments and match your remaining repayment term without starting your loan term from scratch. This saves the “double” interest that most people end up paying when refinancing their mortgage and getting a new 30-year home loan after paying 7 years of interest on the mortgage you currently have.

If you have an Adjustable Rate Mortgage (ARM), you may consider refinancing to change your loan type to a fixed-rate mortgage.

With ARMs, your loan interest rate is tied to an index ( 11th District cost of funds index, or the London Interbank Offered Ratestrong>, for example). As interest rates on the index rise, so does the interest rate on your mortgage. With a fixed-rate mortgage loan, your interest rate is locked in for the entire term of your loan.

Introductory ARM rates are typically lower than conventional rates. This incentivizes borrowers to give them a try. The introductory rate will last for a set period of time before the rates can start adjusting with the index. You may have seen “5/1 ARM”; this means the introductory period lasts 5 years, then rates are adjusted every year after (indicated by the 1 in 5/1).

With interest rates currently on the rise, and expected to continue rising for the foreseeable future, your best bet is to refinance your ARM to lock in today’s lower fixed mortgage rates.

If you can afford to increase your monthly payments slightly, you can refinance from a 30-year loan to a shorter loan term and accelerate the payoff date for you mortgage. This is extremely appealing to people who want to be debt free prior to retirement.

Shorter loan terms are usually granted lower interest rates. Since you’ll be paying off your loan so much faster, you can potentially save tens of thousands of dollars in interest over the term of your loan.

Refinancing from a 30-year loan to a 15-year loan is also a very popular option. Contrary to the common misconception, your monthly mortgage payment will not double when you refinance from a 30-year to a 15-year. Your monthly payments on a 15-year loan may be less than you might think.

There are a few reasons for the lower-than-expected 15-year loan mortgage payments. First, you may have already paid down some of the principal on your loan, so the loan balance will be lower for the refinance. You’ll typically qualify for a lower interest rate on the shorter term, which will affect your monthly payment. In addition, because you’re paying over a much shorter term, the interest amortization schedule will be more favorable.

You may also consider paying your half of your monthly mortgage payment every other week. This strategy effectively creates one additional mortgage payment each year and can cut years of your repayment schedule. You can do this on your own or you can set up bi-weekly billing to automate the process.

“Equity” is simply the current appraised market value of your home minus the amount you still owe on the home mortgage loan. Your equity grows as:

• You pay down the principal of your loan
• Local real estate market prices increase
• You invest in renovations that add value to the house.

You can unlock some of your equity through a refinance if you need cash. A Cash-Out refinance allows you to access your equity at the lower, tax deductible interest rates of a mortgages by using your home as collateral.

There are several very smart reasons to consider accessing some of your equity.

Maybe you have unexpected medical expenses that you simply can’t cover with your savings. Or perhaps you have the opportunity to purchase an investment property, and you would like to leverage your equity for the down payment. Maybe you just want to renovate your home without using all your cash reserves to do it.

Savvy homeowners have also cashed out their equity to pay off high-interest debt like credit cards and auto loans. Credit card interest rates can sometimes exceed 20%. Why not refinance to cash out enough money to pay off the credit cards? Instead of paying interest rates of over 20%, you’ll just pay the single-digit interest rates on that debt. Plus, mortgage interest is tax deductible. Interest on credit cards and auto loans is not. So, you can simultaneously reduce your tax burden and your credit card interest!

Lastly, the equity in your home can also be used to create an Emergency Cash Reserve Fund also known as a “rainy day fund.” Not having an Emergency Cash Reserve Fund can be catastrophic for homeowners and families should the unexpected happen, like a sudden job loss or medical emergency that limits and eliminates your monthly income. Having the equity in your home is a good feeling but it’s a false sense of security if you don’t have access to 6 to 12 months of cash to cover expenses like you mortgage payments, car payments, utilities, school tuition, and basically living expenses like gas and groceries.

Your equity is always accessible as long as you maintain regular employment income and good credit. However, if you lose your job, you simultaneously lose access to that equity because you will no longer qualify for the cash-out refinance. What could be more important than protecting your home and family? To see how much you should have put away for emergencies, check out our Cash Reserves Calculator.

You may have heard us or others talking about this. Maybe you're even wondering, "what does this mean," "is it real," or "how does it work?" Well, the answers to those commonly asked questions are YES — This is real AND insures your home's value based on today and lasts for 10 years!

This is something unlike anything ever before in the mortgage lending industry. You can protect your down payment and/or equity (if you already own a home) for 10 years! However, there are some limitations, so the maximum amount of protection is $200,000 or 20% of the value of your home.

Most of us 35 to 40 years old (or beyond!) remember all too well the ramifications of the housing crises back in 2007-2008, and what happened as values plummeted. Our unique Home Safe Equity Guarantee for refinances and Home Safe Down Payment Guarantee for purchases help ease that fear as well as protect you and your family from a potentially significant loss should you need to sell your home during the downturn.

With housing seeing a bull run for the last 8 years and Colorado at the #2 spot in the country for the amount of equity and wealth built up from housing, this is truly the right place at the right time to insure and protect your gains from vanishing like other trending values have taken already. We actually protect your equity or down payment so they don’t go away if, and when, the market makes its expected correction during a time you decide to sell.

Best of all if nothing happens and we're wrong about the future outlook, you have no risk as you are not limited in your amount of gain! You are, simply put protected from the loss!

We include this with every QM loan. "QM" is the government definition for a safe harbor or full qualifying loan deemed to be fair and in the consumers best interest for rates fees. They are insurable from any government agency like Fannie Mae, Freddie Mac or Ginnie Mae.

Get all the advantages of a purchase or refinance, as well as protection from possible loss in the future... Only at US Mortgages.