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Tuesday, February 19, 2013

Most Frequently Asked Questions About Refinancing Your Home

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Many people tend to oversee the fact that when interest rates are low, they have a significant impact on more than just people buying a home.  Low interest rates, in fact, have a HUGE impact on the overall cost on a mortgage so when people refinance their existing properties under lower rates it translates to thousands and thousands of dollars in savings.  Not only that, if these same homeowners who opt to have their homes refinanced also reduce the term on their mortgage, the savings are unprecedented.  

To help explain some of the most widely asked aspects of the refinancing process, here is a list of questions and answers that shed light on the issues that will help you in determining whether refinancing is right for you.

What Are Some Reasons To Have Your Mortgage Refinanced?

The current real estate market today is experiencing all-time low, historic interest rates on mortgages.  For many professionals in the industry, this is the first time they have witnessed rates at this level.  Reasons for obtaining refinancing on a property include reducing interest rates, reducing the overall term on the mortgage i.e. going from a 30-year loan term to a 20-year term and also to be able to leverage equity that is held up in an existing property.

How Does A Term Reduction Look On Paper?

When the number of years of a mortgage loan is reduced, also called a term reduction, payments may or may not remain the same but the time within which the loan must be paid off is significantly less.  For example, a previous mortgage at 6% for a 30-year term can be refinanced at 3.5% payable in 15 years, which adds up to a savings of hundreds of thousands of dollars and reduces many years off the loan repayment schedule.

What Factors Go Into Eligibility For No Closing Costs Refinancing?

Many mortgage companies are now crediting closing costs.  Though this is a facility that is scrutinized based on an applicant’s eligibility, the savings add up. Eligibility is determined based on specific criteria including the applicant’s credit report and credit score, plus whether or not there is a second mortgage.  Credit score expectations are within the low to mid 700 range, with the higher score translating to better concessions.

How Does A Loan Officer Decide On A Refinance Application?

Each borrower’s situation is different.  Mortgage lenders consider what the loan’s value is, the credit scores, home value and how the market is performing such as in a depreciating market. 

What Is PMI And Can I Avoid It In A Refinance?

Private Mortgage Insurance, or PMI, is required by lenders of most homeowners that borrow at least 80% of the home’s value.  It works as a protective measure in case of default. In cases where the current mortgage is owned by Fannie Mae or Freddie Mac, there is a provision for appraisal relief that can result in exemption from PMI.

What Is The Typical Time Frame For A Refinance Process?

Most applications take about 4-6 weeks if it is a straightforward case. If there is a second mortgage it involves another bank and entails coordination and additional time for processing.

Can I Use Refinancing For Leverage In The Market?

Refinancing would unlock any equity in your home, allowing you the leverage to use those funds in a new purchase.  Not only will it boost the sale process on a new home but it could also eliminate the need for PMI if you put at least 20% down.

What Documents Are Required For The Initial Consultation?

In order to initiate the application process, people applying for a refinance should produce the last two paycheck stubs, W2 statements from the previous two years and the previous two months’ bank statements.


Regardless of if you are selling, refinance should be considered to be able to reduce monthly payments on a home.  This is also a good time for investors to cash in on the opportunity. For a customized assessment, it is advisable to consult with your Realtor.