Refinance Home, Mortgage Refinance, HELOC Options
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Refinance (sometimes referred to as refi ) or not? To refinance a home, i.e. mortgage refinance can be expensive. There are several options: HELOC (home equity line of credit), cash out refinance, or a home loan.
Is it worth it to refinance?
You end up paying origination fees, application fees and points (1 point is equal to 1% of
the mortgage loan amount). The biggest cost is usually the discount points, but you can reduce the cost of refinancing by finding mortgage loans with few or no points. Some lenders
will finance the refinance costs with the new mortgage. This will will reduce the cost of refinancing. There may also be pre-payment penalties when retiring the original mortgage.
So check with you current lender, or find one that will waive some of these fees if you refinance with them.
Bottom line is that the key to refinancing is saving mortgage interest while watching the closing costs. You have to ask yourself how long will you be in the home and how long will it take to recover the closing costs with the new mortgage payments.
See our Mortgage calculator here
for mortgage payment and interest calculations.
* Most lenders use FICO credit scores when assessing the borrower's credit report. It is much harder to qualify for good loans without good credit scores. Get and monitor your credit scores now.
Can I refinance? Here are the options:
Cash out refinance
Cash out refinance is the same process as a refinance except you walk away from the table with a check. The cash is taken from the equity in your home, but it comes at a cost and there are limits. You end up paying origination fees, application fees and points (1 point is equal to 1% of the loan amount). The biggest cost is usually the discount points but you can reduce the cost of refinancing by finding loans with few or no points. Some lenders will finance the refinance costs with the new loan. This will reduce the cost of refinancing. There may also be pre payment penalties when retiring the original loan so check with your current lender, they may waive some of these fees if you refinance the loan with them.
Home Equity Loan
A home equity loan is a one-time lump sum that is paid off over a set amount of time, with a fixed
interest rate and the same payments each month. Once you get the money, you can't borrow any more against the loan. Home equity loans are paid off over a shorter period of
time compared to a first mortgage. 15 years is common for paying off the home equity loans but it could as short as 5 years and in some cases as long as 30 years.
Home equity line of credit
Home equity line of credit (HELOC) works more like a credit card because it has a revolving balance.
A home equity line of credit allows you to borrow up to a certain amount for the life of the. During that time, you can withdraw money as you need it. As you pay off the principal,
you can use the credit again, like a credit card. A line of credit has a variable interest rate that fluctuates over the life of the loan.
Home equity loans and lines of credit are sometimes referred to as second mortgages. You basically doing a mortgage refinance Both allow you to borrow money, using your home's equity as collateral and allow you to get money out of your home without having to refinance your existing home.
* With a home equity loan or a line of credit, you have to pay off the balance when you sell the house.
Beware that a home equity
loan or line of credit is secured debt. If you fail to repay loan, the lender
can seize your home. The lender can force you to sell the home at any cost just
to repay the loan. In the end, you might just lose all that you ever had.
Like in any other type of refinance deal, it is always advisable to shop around major banks, accredited credit unions, or online lenders to strike the best deal. This will enhance the borrower's bargaining capability.
When you apply for a home mortgage refinancing loan online you will get hard copies of all documents you filled out online. You will also get closing cost estimates and other disclosures. You will still have to sign all the documents but at least you won't have to sit in an office filling out all those home mortgage refinancing application papers.
Should I refinance? To answer this question, you first need to determine how long it will take to break even and can you stay in your home that long. For example if you had a $200,000 30 year fixed rate mortgage with an interest rate of 7% your monthly payment would be $1331. If you refinanced at 5% your new monthly payment would be $1074 a savings of $257 per month. If your closing costs totaled $2500, it would take 10 months to break even ($257 * 10 = $2570). With this scenario , if you planned to stay in your months 10 months or more then refinancing would make sense.
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