Refinancing a Home
Learn everything you need to know about refinancing your loan, including how to find the best company and where to get the lowest rates.
Is there a way to avoid paying closing costs?
One strategy that could be beneficial if you plan to refinance again or don’t plan to stay in your home for more than five years is to ask your lender to waive the closing costs: This is known as a “no-closing-cost refinance.” It may cost more, but you won’t have to come up with the funds when closing on the new loan. In order to do this, the lender usually charges a higher interest rate over the entire length of the loan. This often ends up being more expensive than immediately paying the closing costs.Learn More: How to Lower Refinance Closing Costs
When is the best time to refinance?
First, take your total out-of-pocket closing costs and divide that figure by the amount you would save each month. That figure will be approximately how long it would take to pay back your closing costs. Next, subtract the amount of your estimated payment after refinancing from your current monthly mortgage payment. This is how much extra you would have in your budget each month.Learn More: How Much Does Refinancing a Mortgage Cost?
Do you lose equity when refinancing a home?
Whether it’s through principal repayment or price appreciation, the equity you've built up in your home remains yours even if you refinance. Although your equity position may vary with home prices in your market along with the loan balance on your mortgage or mortgages, refinancing in itself won't affect your equity.
How often can you refinance your home?
No existing regulations cap how often you can refinance your home, but lenders typically set limits. Some lenders may also impose prepayment penalties on existing loans. Whether you can refinance will also depend on your credit score and how much equity you have. Note that each time you refinance, you'll pay closing costs and fees that can take years to recoup and your credit will be pulled by lenders, which can negatively impact your credit score if done too frequently.Learn More: 7 Bad Reasons to Refinance Your Mortgage
How many times are your credit scores checked when refinancing?
Your credit scores are pulled once at the beginning of the process and then a second time towards the end of the process. This is to ensure that you did not take out any additional loans or credit cards during the process.Learn More: Refinancing a Mortgage With Bad Credit
What if I don’t qualify to refinance my home equity loan?
If you can’t refinance your home equity loan and the payments have become unaffordable, contact your loan servicer as soon as possible to ask about a loan modification. In cases of financial hardship, your servicer might work with you to change your loan terms so that the payments fit your budget.
A refinance occurs when the terms of an existing loan, such as interest rates, payment schedules, or other terms, are revised. Borrowers tend to refinance when interest rates fall. Refinancing involves the re-evaluation of a person or business’s credit and repayment status. Consumer loans often considered for refinancing include mortgage loans, car loans, and student loans.
Short refinance refers to the refinancing of a mortgage by a lender for a borrower currently in default on their mortgage payments. The strategy is one used by lenders in order to help a borrower avoid foreclosure, because it is more cost-effective than foreclosure proceedings. The new loan amount is typically less than the existing outstanding loan amount, and the lender sometimes forgives the difference.
USDA Streamlined Refinancing
Current USDA loan borrowers with low or no equity can refinance for more affordable payment terms under the USDA streamlined refinancing option. The USDA offers home loans directly and guarantees loans issued by qualified lenders. A streamlined refinanced loan even allows borrowers to wrap closing costs and escrow charges into the new loan amount. That helps homeowners receive a zero out-of-pocket refinance for which no cash is needed upfront.
Homeowners typically choose no-appraisal refinancing—which replaces an existing mortgage on a residence and does not require a new value assessment of the home—when they are unlikely to qualify for a new standard loan. No-appraisal refinancing is typically available from government agencies, including the Federal Housing Administration, Veterans Administration, and the Department of Agriculture.
No Cash-Out Refinance
The opposite of a cash-out refinance, which advances new money to the borrower, a no cash-out refinance replaces an existing loan with the same principal value, or potentially less. It does not allocate any cash to the borrower. A no cash-out refinance is a rate and term refinance, because it focuses primarily on adjusting a borrower’s interest and terms without advancing new money.
FHA Streamline Refinance
Since the 1980s, the FHA has been allowing streamlined refinancing of mortgages it insures. An FHA streamline refinance—available to homeowners who already have FHA-insured mortgages—offers a low-hassle way to refinance the mortgage, including not requiring an appraisal. To qualify for an FHA streamline refinance the borrower must show there will be a net tangible benefit to doing so.
In a cash-out refinance, a new mortgage is taken out for more than the previous mortgage balance, and the difference is paid to the borrower in cash. A lender will determine how much cash you can receive with cash-out refinancing, based on your property’s loan-to-value (LTV) ratio and your credit profile. You will usually pay a higher interest rate or more points on a cash-out refinance mortgage compared with a rate-and-term refinance, in which a mortgage amount stays the same.