Home Loan Refinancing Options
The term “refinance” refers to the process of securing a new loan to pay off an existing lender. You may be considering a refinance to change your current loan program or enhance your financial position. Just as with a home purchase, you and your home must both qualify for the new loan, and your ability to refinance may depend on the amount of equity in your home.
The Most Common Reasons to Refinance
Homeowners typically choose to refinance for one or more of the following reasons:
- To obtain a lower interest rate
- To lower a mortgage payment
- To switch from one type of mortgage program to another
- To consolidate debt
- To withdraw equity from the home to remodel, fund college expenses, or purchase another property
Goal: Lower a mortgage payment
A lower monthly mortgage payment can be achieved in several ways: by lowering the mortgage interest rate, consolidating existing mortgage loans, by lengthening the term of the loan, or by removing mortgage insurance (MI).
Goal: Switch from one type of mortgage program to another
You may be interested in refinancing to move from an Adjustable Rate (ARM) loan to the more predictable, consistent monthly payment offered by a fixed rate loan. If the interest rate on your current ARM loan is scheduled to adjust higher, you may be able to avoid the subsequent rise in your monthly payment by simply refinancing into a fixed rate mortgage.
Perhaps you’re interested in combining an existing first trust deed (1st) with a HELOC or home equity loan (2nd) to have a single mortgage payment. Or, you may need to refinance because it’s time to pay off a balloon payment associated with your existing mortgage.
Goal: Consolidate debt
If you have sufficient equity in your home, you may be able to refinance your current mortgage and free up funds to pay off consumer debt from credit cards or student loans.
Goal: Withdraw equity
Do you have college-age children and tuition to pay? Would you like to remodel your kitchen, add a room, refurbish your home? Perhaps you’re in the market for an investment property. Again, if you have enough equity in your home, you may be able to withdraw the funds to pursue financial goals for you and your family.
The Home Valuation Process
Keep in mind that when refinancing your property must also qualify for the loan, as it must in a purchase transaction. The appraisal is one of the most critical elements of obtaining a mortgage. An appraisal is a professional estimate of your property’s worth, and is used by the lender to confirm the home’s market value. Your appraisal will be prepared by a qualified, licensed appraiser familiar with your neighborhood and property type.
The appraiser will evaluate the price of comparable properties in your neighborhood that have sold within the past few months. A partial list of the elements your appraiser will be observing about your home is its size, age, condition, amenities, appliances, location, view, lot size, utilities, zoning, landscaping, quality of construction, structural integrity, code compliance, and neighborhood.
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