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Mortgage Refinance FAQ
Before you open an account, make sure you have a good understanding of the ground-level details:
Should I refinance my mortgage?
There are many reasons why homeowners refinance their mortgages, but the main reason is that their mortgage was no longer providing them with benefits that coincided with their priorities. Priorities change and qualified homeowners can also change their mortgages to better assist them with their new goals.
How much time and money can I save by refinancing?
The amount of time and money you save will depend on the type of mortgage you choose to refinance into. If you are refinancing into a shorter term mortgage such as a 15-Year Fixed Interest Rate Mortgage from a 30-Year Fixed Interest Rate Mortgage, you will save many years and much more money in interest.
It is important to note that refinancing your mortgage will not change the principal balance of your loan, it will only change the interest rate or length of term.
How much will my new payment be?
This will depend on the type of loan you choose and how much your interest rate will be. If you choose to refinance into a loan with a shorter term, your new payment amount will be larger because you are choosing to pay more to get out of debt faster. Similarly, if you choose to refinance into a longer term mortgage, your new payment amount will be less.
Can I refinance to get rid of PMI?
Normally, no. PMI is required on all mortgages if less than 20% is put down for a down payment. So long as the loan balance is more than 80% of the original home value, you will be required to pay for PMI. The only exception to this rule is the VA Loan as veterans and active duty military members are not required to get mortgage insurance, no matter how little the down payment is.
How do you calculate your new mortgage payment and refinance rate?
Like your previous mortgage payment, your payment will consist of your principal, interest, property taxes, and homeowner’s insurance. Depending on the mortgage you choose and your new interest rate, your payment amount will either increase or decrease.
For refinancing, a home appraisal is very important. An appraisal is done by a 3rd party and the appraiser will inspect your home to see if the home’s value has gone up or down. They will look at the value of neighboring homes and check to see if repairs and other features have been added to the home. If the home value has increased since the purchase, you have gained equity. If the value has gone down so low that you are underwater, you won’t be able to refinance.
Your Loan to Value ratio (LTV) affects the rate and type of loan you may qualify for. It shows what you owe on your mortgage against the home value. Having a low LTV is best because it can get you a better interest rate. If you have a high LTV, your refinance may require PMI.
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