Refinance Loan

A refinance loan on your home means that you are trading in your existing loan for a new one — hopefully one with more favorable terms. When you refinance your home loan, your new lender pays off your old home mortgage loan with the new loan. That, in essence, is the reason for the term “refinance” — you are financing the same home again, just with a different loan.

Many people refinance their home mortgage loans when rates have gone down significantly from when they initially bought their homes. This way, the new home mortgage loan they receive may charge them less in interest over the life of the new home mortgage loan.

Many people take cash out of their home’s equity when they refinance their home mortgage loan, if they have a significant amount of equity in the home, either because they have been paying on their initial mortgage for several years or because their home has significantly increased in value, or both. They can use the cash they take out to renovate their home, pay off higher-interest debt, or save for college or other impending major expenses.

Refinancing your mortgage loan may be the right decision for you if your home’s value has significantly increased or current interest rates are considerably lower than they were when you purchased your home. Through a refinance with the Ridgeway Team, you may be able to:

• Shorten your loan’s term to save even more money
• Refinance into a lower interest rate, which might also lower your monthly mortgage payments
• Convert your adjustable-rate mortgage (ARM) to a fixed-rate mortgage, which will keep your payments safe from possible interest rate increases in the future
• Combine a first and second lien to a single loan for simplicity and possible savings
• Consolidate debt from higher interest rate credit cards or subordinate financed loans into one loan, which may result in lower monthly payments
• Turn your home equity into cash

The cost to refinance your loan depends on several factors. Many refinance loan programs require a new appraisal on the home. That cost can range from $450-$850 for an average-sized home, but it may not always be required under all refinance loan programs. There are also generally closing costs associated with your new refinanced home loan. Sometimes those closing costs, which can vary widely depending on the size and type of property, must come out of pocket, and other times, they can be rolled into the financing of the new home loan instead of coming out of your pocket when the new refinanced loan closes. It is important to discuss the costs, terms, and conditions associated with a refinance loan with your Ridgeway Team mortgage advisor.

The short answer here is that you can refinance anytime when it benefits you as a borrower, as long as you have at least a six-month on-time payment history on your current home mortgage loan. Maybe that means that mortgage rates have decreased considerably. Maybe that means when you have built up a significant equity stake in your home when a refi would serve to either shorten your loan term or to tap that equity by taking cash out at the time of refinancing. The answer to this question is different for each individual client. It is important to discuss your specific financial situation and goals with your Ridgeway Team mortgage advisor when considering a refi.

Yes! You may have several refinance options if you currently have an FHA loan.

1. An FHA Streamline Refinance is the term for when a borrower refinances from one FHA loan into another FHA loan. Since you have already been through the FHA loan process for your initial home loan, this streamlined refinance process means that you will be required to fill out less paperwork for your refinanced home mortgage loan. An FHA Streamline Refinance allows your new lender to use your existing credit and appraisal data from your initial home mortgage loan to approve the new refinanced home loan. So, if mortgage rates have decreased significantly since you bought your home, you may be in for smaller monthly payments with an FHA Streamline Refinance loan. You may also use an FHA Streamline Refinance loan to refinance out of an adjustable-rate home mortgage loan and into a fixed-rate loan product. The FHA loan rules require there to be a tangible benefit for the borrower when refinancing with an FHA Streamline, and converting from adjustable-rate to fixed-rate does qualify.
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2. You may also choose to refinance out of your FHA loan altogether and into a conventional home mortgage loan product. This may be beneficial if your credit score has improved significantly since you took out the FHA loan, because your rate on a conventional mortgage loan with your improved credit score may be better than the rate you have on your current FHA mortgage loan. It may even be better than the rate that you could get in an FHA Streamline Refinance situation. Many people also choose to refinance from their FHA loan into a conventional home mortgage loan as they approach 20-22% equity in their home. As an example, if you put down a smaller down payment (less than 10%) when you purchased your home with an FHA loan, then you know that the mortgage insurance payment (PMI) that is part of your monthly mortgage payment is going to be there for the life of your FHA loan. But with a conventional mortgage loan, mortgage insurance (PMI) usually is no longer required after 22% of the loan is paid off. So, as you get closer and closer to a 20-22% equity stake in your home after making monthly mortgage payments for several years, then refinancing from that FHA home mortgage loan and into a conventional mortgage loan may save you some money on your monthly payment as well.

You are required to have at least a six-month history of on-time monthly mortgage payments before you can refinance any home mortgage loan. However, it may be advantageous to wait even longer than that before refinancing your FHA home mortgage loan, for the reasons discussed in the previous answer. As always, it is important to talk your refinance options over with your Ridgeway Team mortgage advisor to make sure that you are getting the most benefit from your new home loan, because each individual’s financial situation, credit situation, and goals may vary.

These terms are sometimes used in different ways by different people, so some confusion is understandable! In general, all refinance loans depend on how much equity the borrower has in their home at the time when they refinance. Whether you are looking into a rate-and-term refinance loan or a cash-out refinance loan, the more equity in the home the borrower has at the time of the refinance, the more advantages they can reap in their newly refinanced home mortgage loan. So, in that sense, yes, you can consider “home equity loan” and “refinance” synonymous. But sometimes, people say “home equity loan” when they are referring specifically to a cash-out refinance, because the funds the borrower receives at closing from a cash-out refinance come from the equity they already held in the home after paying on their first home loan for several years. We hope this clears up some confusion, but if you have any questions about either a rate-and-term refinance or a cash-out refinance, you should always talk to Scott Ridgeway, your Ridgeway Team mortgage advisor, about your specific situation and goals.