Things to Know when Refinancing Your Loan

There are several things to consider when refinancing your loan.  Ask yourself the following questions:

How long do you intend to live in your house or keep your investment property?

Whenever you are considering a refinance or purchase you need to determine how long you intend to live in the property.  If your plans are to move within a five year period, getting a 30 year loan may not be the best thing for you.

There are loans called ARM’s (adjustable rate mortgage) that are amortized for a 30 year period.  The ARM loan will adjust after 3, 5 or 7 years depending on the program you select.  In most instances the ARM loan may offer a lower interest rate than the 30 year fixed rate.  It is important to talk to one of our mortgage advisors on the length of time you plan on keeping the property. 

A mortgage advisor at Legacy Financial Services will calculate the different scenarios to see which program is best for your situation.


Will a lower interest rate help lower my payment?

In most instances a lower interest rate may lower your monthly mortgage payment.  Depending on your current financial situation you need to make sure the reduction in the payment makes sense.  It used to be said that a person should wait until there is at least one percent - two percent difference between the current interest rate that you are currently paying and the new interest rate you are considering.  Again, every situation is different and sometimes even a minimal savings can help your budget.

Most of the time there are closing costs that will be added to your current balance that will increase your new loan amount.  There are however programs that have “no closing costs” or very minimal. 

It is important to talk to one of our mortgage advisors to calculate the costs and savings when considering a refinance.


What costs will I have to pay to refinance?

When you are refinancing your loan, the loan process is similar to when you purchased your property.  The only difference is that you can have the closing costs added to your new loan which would increase the balance. If there are any out of pocket expenses in most instances it is the appraisal and credit report charges.

Some of the costs include escrow and title fees, lender fees, origination fees known as points (if applicable), recording fees and other related fees.

There are “no cost” loans available.  The difference is that the interest rate will be higher for a “no cost” loan than a lower rate for someone who pays the closing cost.


Should I do a cash-out refinance?

Everyone’s circumstances are different.  When a person takes cash-out from their refinance that means they are determining a set amount of cash that they want and it is added to the new loan.

A cash-out refinance works if there is enough equity in the property.  In most cases a lender will not allow a cash-out refinance for a loan amount over 80% of the appraised value.

A Legacy Financial Services home loan advisor can review the reasons for taking extra cash out with your refinance.  Some people use the cash to invest in other property, college funds, home improvement and consolidating credit card debts, etc.


Is it wise to consolidate bills in a refinance?

If your bills will be paid off within the next 2 -3 years, a debt consolidation refinance may not be a good idea.

There are several factors to look at in determining whether to consolidate your bills into your mortgage.  You need to review what interest rates you are paying on the bill, the balances of the debts and the length of time to pay off the bills.

Have one of our knowledgeable home loan advisors at Legacy Financial Services review your debts and calculate a new mortgage payment after combining your bills into the loan.  See how much you are saving.  If it helps you get back on track with your budget you may consider consolidating. 

Remember, you are adding more years to your loan by consolidating your bills, AND the important thing is not to get back in debt in the future.


How does paying points affect my interest rate?

One thing to keep in mind is the lower the interest, the higher the points.  A point equates to one percent of the loan amount.

If you plan on keeping your loan for over 3 years, paying points would make sense because with the remaining 27 years you would have the benefit of the lower interest rate payment.  In other words you are recouping the loan cost within the 3 year period.

If your plan is to move within the next 3 years, pay the higher interest and go with the zero points.


Should I convert my ARM loan to a fixed rate loan?

Each scenario is different because an ARM that is adjusting may have a lower interest rate than the fixed interest rates that are currently available.

The thing to be watching is the index rate your adjustable rate is tied to.  For example it may be the Treasury bill, Libor, or 11th District Cost of Funds Index.  If these indexes are moving up, it may be a good time to convert to a fixed interest rate.

This is a challenging decision because of unstable market conditions.  By talking to a loan expert at Legacy Financial Services, you can see the differences in today’s ARM products and the fixed interest rate loans.


Is a Reverse Mortgage Right for Me?

There are several reasons a person may consider taking out a Reverse Mortgage in California.  Some seniors are strapped financially and find that social security or retirement income is not enough to live on.

They may still have a mortgage balance that they are making monthly payments on that they are struggling with.  A senior may need cash to do home improvement or to pay off bills.

Health care may also be an issue with the rising costs of medical bills and prescriptions.

If you qualify for a Reverse Mortgage you will be able to pay off an existing mortgage and not have to make any monthly payments if they choose not to.  If there is enough equity in the home you can get a lump sum of money, set up a line of credit, and/or set up a monthly amount of money that you will receive each month from the Reverse Mortgage.

Our Reverse Mortgage experts at Legacy Financial Services in California can review your current situation and calculate if you qualify for a Reverse Mortgage.

Can a FHA loan be done for a refinance?

Refinancing an FHA loan with Legacy Financial Services in Orange County is an option that is available to someone who has little equity in their property.  It can be done as a rate and term loan.

If the interest rate is lower than the current balance of the mortgage and will save you money, an FHA refinance may make sense to do.  You would have to go through the whole loan process and have an appraisal done.

When you make an appointment with one of Legacy Financial Services loan advisors, a complete mortgage analysis will be done on your current mortgage and credit requirements to make sure you can qualify for an FHA refinance.

Is it possible to get cash-out with an FHA refinance?

Yes, in most instances but there must be enough equity in the property to do this.  FHA will require 85% loan to value (LTV) to get cash out. 

Because of the qualifications being more lenient with an FHA loan than a conventional loan, a cash-out FHA refinance may be a good solution since you would get more cash.

How does an FHA streamline refinance work?

The beauty of an FHA streamline refinance in California and other states is that there is very little qualification that has to be done.

Interest rates must be lower than the current FHA rate on your mortgage, and be proven that it will benefit you.

In most circumstances there is no appraisal necessary.  A loan application and verification of your income needs to be provided.  

The process can go quickly when doing an FHA streamline. A qualified FHA streamline loan specialist at Legacy Financial Services can help you with the paperwork to get started.

Can a VA loan be streamlined and refinanced?

Yes. A VA loan can also be refinanced or streamlined.  Call Legacy Financial Services to speak with a VA loan expert to find out the details at: 888-838-4768

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Deborah McNaughton

Your Mortgage Advisor for Life

President of Legacy Financial Services
Author - Radio Host - Columnist
Nationally recognized "mortgage and financial" expert
Seen on CNN, Bloomberg, Good Day NY and others

Host of the Money Manager show on KKLA 99.5FM

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