Home Refinance FAQs
- How Much can I expect to save when refinancing?
- How long does the refinance process take?
- Can I only refinance with my existing lender?
- What is the difference between a cash-out refinance vs a home equity loan?
- How can I lower my payments by refinancing?
- How I can pay off my mortgage faster?
- Choosing a lower mortgage term?
- What debt should I consolidate with a mortgage refi
- Is a mortgage refi a good option for paying off high interest debt?
- Can I deduct mortgage interest paid from a refinance from my taxes?
- How does a cash-out refinance work?
- Is an appraisal required for a cash-out mortgage refi?
- How much cash can I take out when I refinance?
- Can I do a cash-out refi with a FHA or a VA loan?
- What is the loan-tovalue LTV requirement for financing investment property?
- What are the income requirements for financing an investment property?
- How long do I need to wait refi an investment property before I can take cash-out?
The amount you can personally save will vary, since everyone’s mortgage, reason for refinancing, and other factors are typically different. There are certain factors that can impact your personal savings including the term (length) of your current loan versus the refinance term, your debt to income ratio (DTI) which is your income versus your overall monthly debt payments as a percentage, your credit score and credit history, the size of your loan, as well as current market conditions including available interest rates
A typical refinance transactions can be completed from application to close in less than 21 days and some refinances can even close in as little as 10 days. This depends on your participation and the deliverry of the required qualification documents to the lender. It may also depend on the availabilty and schedule of a licensed real estate appraisor in your area. Sometimes USDA (rural) and VA loans may take longer for this reason.
A home equity loan may seem like the less expensive alternative at first glance since it doesn’t have closing costs but in the long run it can cost you much more since the interest rate is uncapped and the rate can rise without notice. Most borrowers tend to use the higher interest HELOC option like a credit card, paying it down and drawing more out for an endless cycle of high interest monthly repayment costs. A cash out refinance might be your safest and most predictable course of action, since all closing costs are included in the loan. Additionally, the interest paid on a cash out refinance is tax deductible which may result in additional annual savings.
One of the most popular reasons for refinancing a mortgage is simply to lower your rate. There are several different approaches to lowering your current mortgage payment including but not limited to refinancing to to a lower interest rate. However, just having a lower mortgage payment is like treating the sympton and not the cause. Typically, homeowners have other monthly debt that they service like credit cards, car loans, student loans, and even HELOCs. If you have equity in your home you may consider a cash out refinace to pay off the other high-interest debt and lower your overall monthly payments.
If you’re looking to accelerate the repayment of your mortgage and potentially save thousand of dollars in interest, here are four simple tips to help you can pay your mortgage off faster:
- Make biweekly payments – Rather than making one monthly payment, you can make half the payment every two weeks. If your mortgage payment is $2,000 a month, you would pay $1,000 every other week. Because there are 52 weeks in a year, a biweekly payment schedule will result in the equivalent of 13 full monthly payments per year. On a 30-year fixed rate mortgage, the extra payment equivilent each year can will help you pay your mortgage off 5 years sooner and eliminate 5 years of interest as well.
- Make additional principal payments – Most mortgage lenders allow you to make an extra payment every month and mark it “principal only”. This payment will go specificallt to pay down the principal balance of the loan. This will also help you save thousands long term in interest payments.
- Refinance into a shorter-term loan – If you currently have a 30-year mortgage, consider refinancing it as a 15-year loan if you can afford the higher payment, This will help you pay it off in half the time, usually at a lower interest rate and you could save tens of thousands of dollars in interest payments.
- Put unexpected money you receive into your mortgage payments – If you put the proceeds of tax refunds and annual bonuses towards the principal of the loan, you’d be pleasantly surprised at how quickly you can pay off your mortgage.
There are two major benefits to a 15-year fixed rate mortgage over a 30-year fixed rate mortgage. A 15-year mortgage typically comes with a lower interest rate, which means that the overall interest you’ll pay on the principal balance of the mortgage is lower. The second benefit is that you’ll pay off your mortgage in half the time of the traditional 30-year option. By paying interest for only half the amount of time, you’ll end up paying significantly less to own your home free and clear.
Paying off your mortgage earlier is a personal decision based on your financial goals. The good news is, most lenders will let you pay off your loan faster without pre-payment penalties. here are just a few reasons you might consider accellerating your repayment:
- Retirement– Your monthly mortgage payment usually takes a large percentage of your income to pay. However, when you retire, your income commonly drops by up to 66%. By eliminating your mortgage payments prior to retirement you’ll eliminate the additional financial stress and enjoy your retirement more.
- Interest Savings – To put it in simple terms, the shorter the repayment term of your home loan, the less you’ll interest you’ll actually pay over the life of the loan.
- Enjoy peace of mind –Paying off your home and debt-free as early as possible opens up the possibilities from doing want to do versus doing you have to do.
A cash-out refinance to pay off high-interest credit card debt makes great financial sense, as long as you have the discipline not to run up your credit card balances after they’ve been paid off. If you can maintain the discipline to never use more than 30% of your available consumer credit at any given time, you’ll probably see a significant increase in your FICO scores.
While the interest you pay on consumer debt like credit cards is not tax deductible from your annual federal income taxes, your mortgage interest is deductible. That translates into greater savings over time. Be sure to consult your tax advisor or accountant for more information regarding the details.
A cash-out refinance allows you to unlock the equity in your home. The amount of cash you can receive is based on the difference between the current value of your home minus the remaining balance on the loan. You basically refinance the mortgage for more than the current balance and less than the current value. While having the equity in your home may seem appealling, something to consider is that as long as you still owe money on your home, the house and the equity belongs to the bank as collateral against the mortgage.
Most cash-out refinances will normally require a home appraisal. The appraiser will establish the value of your home by inspecting the condition of your property and comparing it to “comps” in your neighborhood. The estimated value of your home minus the amount you still owe on the mortgage determines your equity. Quite often, you may find your home may be actually worth more than you think, so having a home appraisal.
Depending on your loan type, you can take out the difference up to 80% of the home’s current value versus the remaining balance or the entire difference between your home’s current value versus the remaining balance. If you’re a veteran you may even be eligible to take out up to 100% of the home’s current value versus the remaining balance. To get a better idea of your available equity, schedule a no cost, no obligation consultation with a Personal Mortgage Advisor.
Absolutely. FHA loans normally will allows you to cash out up to 85% of the property’s current value and requires less documentation than a conventional cash-out refinance mortgage. A VA loan process is similar to the FHA in that it is backed by the federal government, however, with a cash-out VA refinance you can cash-out up to 100% of your home’s current value. If you or your spouse is either a veteran, active in the military, or a surving spouse, a VA loan may be a great option.
For a single-unit investment property purchase, a 15% down payment is normally required with an LTV of 85%. 2-4 unit investment property purchases with an LTV of 75% may require a 25% down payment to finance the property.
Required income for financing your investment property varies depending on the estimated amount of the monthly mortgage payment along with other debt considerations. The total debt-to-income ratio (including the mortgage payment) generally should not exceed 45%. For more information we reccomend a no cost, no obligation consultation with one of our Personal Mortgage Advisors.
Usually you have to wait through a six (6) month seasoning period prior to using a cash out refinance to take equity out of your investment property.