Everyone's talking about how mortgage rates are at an all-time low. Time to jump on the refinance band wagon? Unless you're a mortgage guru, you probably have a few questions about the process and some common lingo that gets tossed around at cocktail parties. Yes, those would be pretty boring cocktail parties but you get my point. Our lending department supplied me with the answers to some of these refinance questions so read on and refinance with confidence...
What does refinancing cost?
Closing costs may vary depending on the loan. You will be required to pay for an appraisal, title search/policy and credit report, plus you may need to establish an escrow account, pay for recording fees, and other misc. expenses. Typically, the closing cost of a refinance is about $1,500.00. You can usually roll this into the loan, but borrowers can also pay out of pocket if you don’t want to increase your loan.
What’s the 2% rule?
The 2% rule states that you should aim for a 2% lower interest rate in order to ensure that the savings generated by your new loan will off-set the cost of refinancing. While this rule is useful as a point of reference, it shouldn’t be adhered to strictly. If you think you will stay in your home for 5 or more years for example, even a 1% interest rate reduction will pay off for you.
How long does it take to go through the refinance process?
A typical refinance usually takes between 45 to 60 days to close once we have your completed loan application. Contact us for more information.
Will I need to have an appraisal done when I refinance?
How does the APR differ from the interest rate?
The interest rate is the rate your payment is based on and used for the calculation on the payment of your loan. The (APR) rate combines the interest rate and your prepaid finance charges, expressed as a percentage over the life of the loan.
What are FRM & ARM?
The interest rate of a Fixed-rate Mortgage (FRM) will not change for the life of the loan. Alternatively, an Adjustable-rate Mortgage (ARM) will be subject to periodical interest rate adjustments based on interest rates around the country.
What is PMI?
PMI stands for Private Mortgage Insurance. Borrowers with less than a 20 percent down payment are required to carry this insurance as a means of protecting the lender against default.
Does bad credit exclude me from a refinance loan?
Not exactly. When considering a refinance loan it's important to remember that the better your credit score the better interest rate you can get. So if you don't have perfect credit, you can still qualify for a refinance loan but you'll want to make sure that you're lowering the interest rate on your loan enough to make a refinance worth it.
Do I need to have equity in my home to refinance?
Yes. The general rule is that you need to have 90% loan-to-value ratio before you can refinance. This means that your home is worth about 10% more than your current mortgage loan.
Can I get cash from a refinance loan?
Yes. Depending on the type of refinance loan you opt for you can take out cash to use for bills, home repairs or whatever you might need. This option however should be carefully discussed with us.
Can I "lock-in" an interest rate on a refinance loan?
You can lock your interest rate after we have received a complete signed application package, required disclosures and supporting documentation.
Want to see what current mortgage rates are? Click Abri Mortgages