Get Answers To Your Mortgage Refinance Questions
Get Answers To Your Mortgage Refinance Questions
With low rates, now is a great time to consider refinancing your home’s mortgage, whether you’re a homeowner in State College – or anywhere else in Pennsylvania.
D. Shane Whitteker is the owner and chief broker at State College mortgage company Principle Home Mortgage. He and his team specialize in mortgages of all types, including mortgage refinances.
What is a Mortgage Refinance?
When you take out a new home loan and use all or most the money from it to pay off an existing mortgage, it’s known as a mortgage refinance. There are many reasons to refinance, including to get a lower the interest rate than you had on the original loan.
“A mortgage refinance is simply when a homeowner decides to pursue financing on a property they already own. This can be done whether or not the homeowner owes money on the home,” Whitteker says. “This is typically done to reduce and interest rate on existing mortgage debt, consolidate other debts, or pull home equity in the form of cash for various reasons.”
When Should I Consider Refinancing My Mortgage?
There’s more than one reason to consider refinancing your mortgage. People refinance to reduce interest, change the mortgage type — from a variable interest rate to a fixed rate, for example — or to access some of the home’s equity.
When Is It a Bad Idea to Refinance My Mortgage?
There is no immediately “bad” reason to refinance, but some scenarios could have negative consequences. Refinancing to consolidate debt, for example, only works if you don't acquire additional debt afterwards. Refinancing to get lower monthly payments may result in you paying more interest over the life of the loan.
Whitteker says it’s a matter of making healthy financial decisions and planning with the long view In mind.
“Any time you are paying off short term debt with long term debt, you need to really think things through. Sometimes this may be unavoidable in certain circumstances. I occasionally see a client that wants to pay off a car with a mortgage. It doesn’t make financial sense to pay off a 4 or 5 year debt with a 30 year debt,” Whitteker says. “The interest you will pay in the long run is very significant compared to short term debt. If you know you will be moving from your home and will sell the home within a short period of time it usually is not worth it to refinance. I typically tell people if they don’t plan to keep the property for 5 years a refinance is probably not in their best interest.”
How Much Can a Lower Interest Rate Save Me Over the Life of My 30-Year Mortgage?
A lower interest rate can save you a significant amount of money over a 30-year loan, with the exact savings depending on your mortgage amount. For a 30-year, $300,000 mortgage with an interest rate of 5.125 percent, the savings are $107,481 over 30 years for a refinanced loan with the same terms but an interest rate of 3.276 percent.
What Can I Do With the Money I Took out in a Mortgage Refinance?
"You can really do whatever you want with this money. The bank will ask you what you plan to do with the money but they don’t have specific rules for what you can do,” Whitteker says. “They mainly want to make sure you will not be incurring any more monthly debt or obligations with the money. There are also some rules about investing money that you pull from your home equity. I am not an expert on that part, if you are interested in doing this make sure to speak with your financial advisor first.”
How Often Can I Refinance My Mortgage?
There are no laws capping how many times you can refinance, but many lenders do have their own limits. If you are doing a “cash-out” refinance, which means you tapped into your home’s equity and got some cash back when you refinanced, you will likely have to wait six months before you could refinance again.
What Are the Steps to Getting My Mortgage Refinanced?
Your local mortgage broker will help walk you through the process each step of the way.
“You start by checking with your local mortgage broker about what kind of rates and terms you would qualify for. Then you engage in calculations to figure out what the best options are for your scenario,” Whitteker says. “At this point you would finalize your application with your mortgage broker. Once this is complete the broker will send the initial disclosures and order the appraisal is necessary. Next, the loan is submitted to underwriting and the mortgage broker will work with you through the process of underwriting to get to the closing table.”
What Are the Expenses Associated With Refinancing My Mortgage? Can Those Costs Be Built Into the Loan?
Refinancing costs vary by lender and location. According to Nerd Wallet, the closing cost is anywhere from 2 to 5 percent of the money owed on the mortgage you’re refinancing. This cost includes origination, inspection and appraisal fees.
How Much Equity Do I Need to Have in My Home to Refinance My Mortgage?
“Typically you will need to have around 5-8% prior to refinancing in existing home equity,” Whitteker says. “This depends on the type of loan.”
I Have a Lot of Questions About Refinancing My Mortgage - Where Is the Best Place to Go and Get Them Answered?
Ideally you should aim to get in and discuss your situation with your local mortgage broker. They're experts in the field and will be able to fully address any questions you may have.
In addition, many brokers have online guides, and the FHA has resources on its official website.
Does Refinancing My Mortgage Hurt My Credit Rating?
According to Whitteker, a mortgage refinance will have a minimal impact on your credit score, if any.
“In general no, it shouldn’t have much impact at all on your credit rating,” Whitteker says. “Credit inquiries can have a negative impact if you have your credit pulled a number of times over an extended period of time. In general though, when applying for a mortgage it is typically between one and three credit inquiries within a two week period which should not have much of a negative impact if any.”
My Credit Isn’t Great - Can I Still Refinance My Mortgage?
You can still refinance your mortgage with poor credit in many cases. If you have a good relationship with a broker already, start there. If you have a current FHA-backed mortgage, you have options, since the agency will accept a lower borrower credit score than traditional lenders. The VA does not require credit underwriting for its Interest Rate Reduction Refinance Loan, but your current mortgage must be VA-backed and you need to meet the other program requirements.
Refinancing your current home loan can save you money over the life of your loan, allow you to tap into your home’s equity and allow you to change important loan terms - and rates are currently favorable. If you are ready to refinance your mortgage, contact State College mortgage broker Principle Home Mortgage at (814) 308-0959.
As a first time home buyer, you'll want to prepare for the process. Our first time home buyer guide is a great place to start!
Navigating the home buying process - in State College or anywhere in Pennsylvania - can be complex. In this article we examine some 'inside tips' to help get you a great mortgage for the home you're dreaming of.