Considering Refinancing Your Mortgage? Read This First

Mortgage refinancing is an attractive option these days, with mortgage rates at historic lows. To get the inside scoop, we spoke with Williamsport mortgage expert D. Shane Whitteker, owner and chief broker at Principle Home Mortgage.  

What is a Mortgage Refinance? 

When you first purchase a home, you will most likely have a mortgage on it. This mortgage is a loan that is utilized to pay off your home. If you want to replace your original loan with one with better terms, you are refinancing your mortgage. A mortgage refinance is often available with any lender. They are a great option if you are looking for lower interest rates or shorter terms. 

When Should I Consider Refinancing My Mortgage? 

There are many factors to consider when determining if it is the right time to refinance. One of the most important factors is to determine if your current credit is good enough to be approved for a new loan. You should also probably only refinance if you plan to stay in your house for more than five years.  

Whitteker recommends keeping an eye on what you hope to accomplish with the refinance.  

“This really depends on what your objectives are,” Whitteker says. “If your rate can be lowered this can be a good option. If you can lower both your rate and your term that is even better when considering savings in the long term.  If you need to consolidate high interest credit card debt a refinance may be a good option if you have the equity to do this.  A lot of refinance options are dictated by how much equity exists in the subject property.” 

When is it a Bad Idea to Refinance My Mortgage? 
 
What is your goal for your mortgage refinance? If you’re looking to pay off a car debt with a longer mortgage, that probably doesn’t make much sense. Why? Because in the long term, you’ll end up paying way more for that car. If your goal is to get a lower interest rate or a shorter term, it’s probably a great idea to refinance your mortgage.  

How Much Can a Lower Interest Rate Save Me Over the Life of My 30 Year Mortgage? 

A 30 year mortgage will have you paying the most interest out of any other term. Even a 1% difference in interest rates can save you significant money. A 1% lower interest rate has the ability to save you over $30,000 on a $180,000 mortgage, for instance.  

“Depending on what your current and proposed rates are this can be significant,” Whitteker says. “For example, if you currently owe $250,000 at 5% on a 30 year term with 28 years left to pay and you are proposed a term of 25 years with a loan amount of $258,000, and a rate of 3.5% you will save $50.45 per month and will save $63,448 over the term of the mortgage.” 

What Can I Do With the Money I Took Out in a Mortgage Refinance? 
 
The money you receive can literally be utilized for anything you need. Many people opt for sprucing up your home or making necessary home repairs. This will increase the value of your home in case you ever decide to sell it further down the line after refinancing.  

How Often Can I Refinance My Mortgage? 
 
According to Whitteker, this depends on the type of mortgage you are pursuing.   

“VA mortgage loans have the most strict restrictions on this topic,” Whitteker says.  

“There really is not limit to how many times a person can refinance as long is the refinance serves certain purposes for the client. For example, a lending institution is not allowed to put someone in a worse financial situation unless certain things are met like getting cash out to pay off other debts, to pay off an ex-spouse, to do home improvements, etc.” 

What are the Steps to Getting My Mortgage Refinanced? 

When you find a local mortgage broker that works for you, lock in quick to secure the interest rate. From there, you have to provide financial documentation which an underwriter will review. When you are approved, the refinancing will have a closing and you will eventually receive your equity check. Your new mortgage will then officially be set up. 

What are the Expenses Associated With Refinancing My Mortgage? Can Those Costs Be Built Into the Loan? 
 
Refinancing does come with some closing costs but you will typically make this cost up over time throughout the life of your mortgage.  If you are not going to recuperate these costs withing a 3-5 year period the refinance may not be worth the cost unless other objectives are being met.   

Whitteker says most costs associated with your refinance are usually rolled into the mortgage.  

“Typically these costs are financed as long as there is sufficient equity in the subject property,” Whitteker says. “In general your expenses will include a bank fee or underwriting fee, an appraisal fee, a processing fee, escrows for taxes and insurance, title insurance expenses, credit report fee and possibly other fees depending on the scenario and state.” 

How Much Equity Do I Need to Have in My Home to Refinance My Mortgage? 
 
There is not a specific equity amount that goes along with refinancing a mortgage. Most experts recommend that you have at least 5% to 8% equity in your home, however, before refinancing. If you have good or excellent credit though, you may be able to get by with a lower equity amount.  

I Have a Lot of Questions About Refinancing My Mortgage - Where is the Best Place to Go and Get Them Answered? 

“There is nothing wrong with doing research online, but I prefer to have a conversation with my clients so I know and they know that they are getting first hand industry knowledge which is far more accurate than reading about the process,” Whitteker says. “The mortgage process is also incredibly dependent upon the specific mortgage scenario so having this conversation becomes even more important considering this fact.” 

Does Refinancing My Mortgage Hurt My Credit Rating? 
 
Refinancing generally does not lower or impact your credit score. The process does involve a credit check which could show up on your credit score. A hard credit inquiry will show up on your credit history in this case. 

My Credit isn't Great - Can I Still Refinance My Mortgage? 
 
There are options available for individuals who want to refinance with bad credit. There are streamline programs such as the FHA refinance loan, the VA loan and the USDA loan to assist borrowers with lower credit scores. It is important to note that these methods of refinancing may have slightly higher interest rates though. It is important to talk to the broker about options before making a decision. 

Refinancing your mortgage can be a great way to reduce the length of the mortgage, lower your interest rate, or pull cash out from established equity. To learn more about refinancing your mortgage, contact the Williamsport mortgage company Principle Home Mortgage at (814) 308-0959.