Karen Behfar
Last month, we talked about the pros and cons of refinancing. This month, we would like to delve deeper into this topic by discussing the types of refinance options available. We sat down with Aryeh Brecher from FM Home loans to discuss the differences between the various mortgage refinancing options that are available.
Mortgage Refinance Options
Rate and Term Refinance – This is a beneficial option when refinance rates are lower, as this type allows borrowers to change the interest rate and loan terms of their existing mortgage.
Cash-Out Refinance – This is when you take out a new mortgage on your property for a larger sum than what you originally owe. This lets you take advantage of the equity you’ve built up on your home.
VA Streamline Refinance – This option is available to military veterans and active service members with Department of Veterans Affairs loans. It lets VA loan borrowers potentially lower their monthly payments and interest rates, shorten or lengthen their loan term, or change their adjustable rate mortgage to a fixed rate mortgage.
FHA Streamline Refinance – This option is great for borrowers with Federal Housing Administration (FHA) loans who would like to lower their monthly payments and skip repeating the FHA appraisal process.
USDA Streamline Refinance – This is for borrowers of US Department of Agriculture (USDA) loans with little equity in their homes to potentially lower their interest and switch to a shorter or longer loan term.
Reverse Mortgage – Borrowers who are over 62 years old and have sufficient equity in their home can avail of this type of refinancing.
Short refinance – This is a suitable option for borrowers who have skipped their mortgage loan payments and are at the risk of having their home foreclosed. Your lender will change your existing mortgage with a loan that has a reduced balance. This way, foreclosure is prevented while your lender loses less money compared to if the home was foreclosed.
Before you refinance, there are several factors you must consider.
- Type of mortgage loan you currently have
- Type of borrower you are
- Financial goals you plan to achieve by refinancing
- Amount of equity you have in your home
- Your credit score
- Your DTI and LTV ratios
- Overall financial standing
COSTS OF REFINANCING
The type of loan and the method you choose to refinance will determine the costs of refinancing your home. Most of the types of refinancing will require the borrower to shoulder various closing costs that may average three to six percent of the total loan balance. Below are some common refinancing costs:
Loan Application Fees – This covers credit checks, evaluations, and other administrative related tasks. Most of the time this is non-refundable.
Loan Origination Fees – This is charged to the borrower for processing new loan applications and is usually around 0.5% to 1% of the refinanced loan amount.
Home Appraisal Fees – Having a home appraised is mandatory in refinancing a mortgage.
Title Service Fees – This is the fees charged to verify and confirm that there are no claims or liens on the property.
Government Recording Fees – Authorities document and record refinance agreements to protect the interests of both the borrowers and the lenders.
Attorney Fees – Attorneys prepare and review loan documents to ensure compliance with laws and regulations. Attorneys may charge a significant fee for their services.
It is always recommended to contact a lender if you are unsure about which type of refinance would be the best for you, considering your situation. The lender can guide you and give you a clear description of the whole refinancing process so that your financial goals are properly met.