When you are looking to refinance your mortgage, you would like to see all possible options to lower your cash to close.
If you are paying your property taxes and homeowner’s insurance through an escrow account you should consider the option of netting the escrow when you are refinancing your mortgage.
In this post, we will understand what is netting escrows in detail.
Escrow netting is only available on request for individuals who are looking to refinance their current mortgage.
It allows the borrower to credit the balance in the escrow account towards the outstanding mortgage balance at the time of requesting a payoff.
Escrow is money set aside at the beginning of a mortgage (and as part of the monthly payment) to ensure that property taxes or property insurance are always paid on time.
This escrow account helps you to set money aside for paying property taxes and homeowner’s insurance before they are due so that you don’t have to pay it in a lump sum.
When you are refinancing if you request to net your escrow, the lender will send you the payoff after deducting the escrow balance from your existing mortgage balance.
When you refinance, escrow netting will allow you to apply the credit of the balance amount toward repaying your existing mortgage.
In other words, netting escrows help reduce the principal amount for the mortgage that you are going to refinance. Let’s give an example.
John refinances his mortgage with an outstanding balance of $200,000. He has $2,000 in his old escrow account.
He requests for netting his escrow. With the request the lender nets his escrow balance with the current payoff and his new refinance principal amount would be $198,000.
In another example, Jane refinances her mortgage with a balance of $200,000. She decides not to net the escrow.
Her balance in the escrow account is $2,000. In this case, the new refinance principal amount is $200,000 and she would receive a check from the lender for $2,000.
In John’s case, since the new principal amount is lowered by $2,000, this means that the monthly payments that he would be paying would be less than what Jane would be paying considering that both of them get the same interest rate and loan term.
It is important to keep in mind that the netting escrows option is not available for all types of refinances.
FHA does allow the borrowers to net their escrows while refinancing their current FHA loan, however not all the lenders would provide this option.
It is better to check with your lender before you refinance to check if they provide this option.
Anyways, you would have to pay escrow when you refinance; however, escrow netting could help you to lower your monthly payments.
Ensure that you speak to the appropriate department and/or management. Be patient with what you ask for. Typically, the lender will ask you to submit a written application.
Submit the request to the payoff department via the website, email, or fax. Then wait for the correct number of days and call back to follow up!
The request letter must include the following: It should mention that you are requesting to net your escrow balance with your payoff. Ensure that the request includes your name, address, and correct loan number.
After mentioning all the above things, sign the request letter with the date.
Not all lenders accept e-signs. Most of the lenders would require a wet signature for this kind of request.
Even if the e-signs are accepted by some lenders, it may take time to process the request.
When you refinance your current mortgage, you have two options. You can pay the new escrow amount at the closing and receive a check for the escrow balance after the closing, or you can request to net the escrow and apply a credit to the current mortgage balance.
Either way, a new escrow account needs to be set up as part of your monthly mortgage payment once you refinance.
Hence, Escrow netting can lower the principal balance of your new mortgage. Finally, a lower principal helps borrowers save money over the life of the loan.
The downside of netting escrow is that returning the original escrow balance will not result in a refund.
You won’t have access to the escrow funds. Instead, the money is sent to help you with your next mortgage principal.
Netting escrows could be one of the best options to save money on your mortgage refinance in the long run.
However, this option may not be available to every lender. Ensure that you speak to your lender before refinancing to check if this option is available with them.
If you do not request to net your escrow, by default the lender would refund the amount to you after the closing.
When you take a mortgage you would always expect that you make your mortgage payment on time and never miss them and so does your lender.
However, due to some unforeseen circumstances, such as loss of job, medical emergency, or accidents, a borrower may experience financial hardship.
As a result, the borrower may be unable to make the mortgage payment which leads to foreclosure.
Foreclosure is an expensive procedure for lenders and a devastating situation for borrowers.
To avoid foreclosure one of the provision available is known as loss mitigation. In this post, we will learn what loss mitigation means and how it works in detail.
As we have discussed above, there could be many reasons why a borrower can face financial hardship and miss his mortgage payments.
In such situations, it is ideal for both the mortgage lender and the homeowner to help the homeowner stay in their home and get back on their feet so they can eventually be current on their late payments.
With the help of loss mitigation, the homeowner can stay in the home without the foreclosure process.
Loss mitigation is a process designed to protect homeowners and mortgage holders from foreclosure procedures. This can be one of several strategies that homeowners can use to stay on top of their mortgage while staying in their homes.
In a worst-case scenario where the borrower defaults on the mortgage, loss mitigation can reduce the negative impact of foreclosures.
If you are having trouble repaying your mortgage, contact your mortgage servicer. Your service provider is the company to which you pay your mortgage payments.
Their job is to help with payment issues as well as collect payments and maintain an escrow account (if any).
Your provider may or may not be the mortgage lender you borrowed from. Rights to service your mortgage may be sold or bought by others.
Based on the type of financial challenge you are in, your lender might offer you various types of mitigations.
Below mentioned are the options:
With the help of forbearance, you can reduce or temporarily stop paying your monthly mortgage payments.
Any outstanding amount will be added to your loan balance and will be repaid at the end of the grace period according to an agreed schedule known as the repayment plan.
Administrators may offer an option to extend the initial 6-month forbearance period by an additional 6 months (1 year in total).
After this period ends, the borrower repays the outstanding amount in regular monthly payments, usually over six months (or one year if the period is extended).
If you can repay the outstanding amount and resume normal payments during the forbearance period, you can contact your loan servicer to reinstate your mortgage.
A deferred payment is a way to pay the monthly payments that you were allowed to miss during the forbearance period.
In this type of mitigation option, the borrower needs to pay the missed payment amount at the end of the mortgage term, refinancing the current mortgage, or selling the property.
In this option, the lender will change the complete term of your loan, such as the tenure and/or the interest rate to make the payments more affordable.
Based on your lender and the type of mortgage, you may be eligible to lower the monthly payments by up to 25% or by increasing your tenure of mortgage for up to 40 years.
A Short Sale
In this option, the loan servicer agrees that the home can be sold for less than the mortgage loan. Servicers will incur costs as they progress. When home prices fall, short-selling activity increases.
A foreclosure could still be a better option, but both sides still suffer. Mortgage servicers will lose their part of the profit and borrowers will get a negative impact on their credit and lose the opportunity to make a profit from the sale.
This is an option in which the borrower transfers the title of the property in the name of the loan servicer in exchange for loan forgiveness.
With a deed in lieu of foreclosure, both borrowers and the loan servicer can save a lot of time and money which might be included in a foreclosure process.
In some situations, the borrower can reach an agreement with the servicer to stay in the house for a specific time until they find alternate housing options.
Loss mitigation is a process that the lender goes through with the borrower before the foreclosure process. If none of the mitigations work, then the lender only has foreclosure as a last resort.
It is important to speak to your lender to discuss all the possible options if you are unable to make mortgage payments due to financial hardship.
Your lender or your loan servicers would always prefer any of the loss mitigation options over foreclosure.
In the financial market corporations, entities, and investors often require funds for their operations.
The funds are acquired through a bond or a loan. To acquire the funds the corporations, entities, and investors need to pay interest to the lending parties. As we all know that the interest rates always fluctuate.
In the event, that the rates are expected to rise in the future; the borrowing parties have an option to do an interest rate swap.
In this post, we will understand what is an interest rate swap, and how it works with examples.
Interest rate swap is a term in which two companies exchange their interest rates on their bonds or loans to avoid the potential risk of spending more on the interest rate in the event the interest rate rises.
In the interest rate swap, the notional amount is taken into consideration for the interest rate swap.
It is only the interest amount that is exchanged in an interest rate swap. Usually, the companies or investors do this to exchange their fixed rate for a variable rate or vice versa.
If a company or an entity has a variable rate interest rate, this interest rate is indexed based on London Interbank Offered Rate (LIBOR).
Lenders will charge their share of interest on top of the LIBOR for a specified period mentioned in the lending contract.
A fixed-rate is a rate charged by the lender irrespective of the LIBOR index for a specific period in the lending contract.
Let’s say company A borrowed $2 million from lender 1 at a floating interest rate of LIBOR + 1%.
Let’s assume that the LIBOR rate is 5%. So company A is paying an interest rate of 5%+1% is 6% on $2 million for the first period which comes to $120,000.
In the second period, the LIBOR goes up to 6%, the lender will then Company A will end up paying 7% which comes to $140,000.
There is another company; Company B that borrowed $2 million from lender 2 at a fixed rate of 8%. Company two will be paying a fixed interest payment of $160,000 during period one as well as period two.
Company A and Company B decide to swap interest rates with each other. In the contract, Company A decides to pay a 7% fixed rate on the notional amount, and Company B agreed to pay LIBOR +0.5% to Company A.
In this event, Company A will be paying a fixed rate of interest on the notional amount of $2 million to Company B, and Company B will be paying a variable rate of interest on the notional amount to Company A.
After the interest rate swaps, in the first period, Company A would be paying 8% to Company B on a notional amount of $2 million which comes up to $160,000. Company A would receive an interest amount from Company B on a LIBOR+0.5% which is 5.5% which comes to $110,000.
Company A will be paying the lender 1 the interest amount on LIBOR+1% which would be 6% which comes to an amount of $120,000. In the fire period, Company A will be paying a net amount of $170,000 in interest.
In the second period, Company A will be paying the same 8% which is $160,000. However, this time since the LIBOR rate has increased, Company A will receive 6.5% of the interest from Company B which comes to $130,000.
Also, Company A will be paying 7% to the lender 1 which comes to $140,000. In the second period, the lender B will pay a net amount of $170,000 in interest. This means now Company A is paying a fixed amount of interest in each period.
Now let’s see how much Company B is paying for the first and the second period. In the First Period, Company B is paying 5.5% to Company A ($110,000).
Company B is receiving 7% from Company A ($140,000), and paying 8% to Lender 2 ($160,000). In the first period, Company B will pay a net amount of $130,000 in interest.
In the second period, Company B will pay 6.5% to Company A ($130,000). Company B will receive 7% from Company A ($140,000) and will pay 8% to Lender 2 ($160,000).
In the second period, Company B will pay a net amount of $170,000 in interest. This shows that Company B will have variable interest payments in each period.
The interest rate swap is a great way for many companies to increase cash flow and lower the risk of rising interest rates.
These swaps happen only over the counter (OTC) unlike any other swaps. Though it is a benefit there is still some risk involved for any one of the parties defaulting on the payment. This would lead to a very challenging situation for both parties.
This is a very common question asked by many people who already have a mortgage on their properties. It could be a confusing situation when it comes to refinancing your house.
When mortgage interest rates are going up and especially when they are going down, a lot of people have begun to wonder, When is the best time to refinance a home loan in Texas?
At some point, every homeowner wonders when does it make sense to refinance a home loan. There are a few factors that you may want to consider before you decide to refinance your home mortgage.
We all are aware of how refinancing works which we discussed in one of our previous blogs “What Does It Mean To Refinance”.
We also mentioned some common reasons why an individual would refinance a home loan. Today we will see ‘When Is The Best Time To Refinance A Home Loan In Texas’.
Most homeowners think that it is a good decision to refinance a home loan when you are getting a lower interest rate.
Yes, usually they are right. But the thumb rule says if the interest rate you are getting on your new refinance should be at least 0.75% to 1% lower than the previous mortgage interest rate.
For example, if your previous interest rate is at 5% it would make sense to refinance a home loan if you are getting an interest rate of at least 4.25% or lower.
A second most important factor to keep in mind to refinance a home loan in Texas is how much time would it take for you to recoup the closing costs which are charged by the lender to get the refinance done, and if you are planning to stay in the house long enough.
If you are planning to move before you recoup the closing costs we would suggest not to refinance at this time. Make sure you know all the fees included in the closing costs.
It is always suggested to pay the closing costs upfront because if you include that in your loan amount you might end up paying interest on the closing cost as well.
The third important factor to consider would be when you decide to pull money from your equity. We have already established how important your home equity is in “Understanding Home Equity”.
When you decide to pull money out from your home equity is always suggested to invest in an asset that would give you more return for the amount of money you took out.
One more thing you might want to consider especially when interest rates are really low is to lower your loan tenure.
When the interest rates are low and you are at a 30 years mortgage and if you have paid off a few years, it would be a good decision to refinance if the payments of a 20 years mortgage are either the same or lower than your current 30 year one.
Considering all the above factors, ensure when you can save money n your existing mortgage that is the time when you might want to start thinking about refinancing a home loan in Texas.
Have a conversation with your trusted loan officer whenever you think that the time is right for you.
Eventually, it all has to make sense and should be worth all the efforts that you are willing to put going through the refinance.
If you are wondering whether does refinancing hurt your credit? Then according to credit bureaus, the financial companies that produce the well-known credit scores, your FICO credit score is affected in many ways by Mortgage refinancing.
But all impacts would be small and temporary in comparison to possible changes caused by the way you handle your mortgage payments for the duration of the note.
If you are constantly refinancing or applying for new credit related to your mortgage then refinancing does hurt your credit score.
Credit rating companies do not fancy having your credit score pulled too many times over a short period, and from too many different potential creditors.
In fact, if you are unable to honor a credit contract or having too many inquiries on your credit report then FICO might penalize you.
And, every time you refinance, the credit score gets pulled, and it often has a negative impact on your credit score if you are having too many credit score requests within a short period of time.
Likewise, interest rate shopping for a refinance on your current mortgage will lead to multiple credit inquiries in a short period.
In 2009 for certain kinds of debt, like mortgages or student loans FICO and other credit scoring systems changed the way multiple inquiries are treated on your credit score.
FICO recommends submitting all of your applications within a 30- to 45-day period if you are going to shop around.
With this newest scoring model, even if you do not take up a new loan, FICO treats all of your inquiries during that period as just one “credit pull,” as a result the impact on your score gets minimized.
But there are some lenders who choose to use older FICO scoring models, so some people still prefer to limit their inquiries to the duration of a fortnight.
When you refinance an existing loan, then the older mortgage accounts are paid off so you could be missing out on some credit benefits by replacing a long-standing payment history on one debt.
Compared to new or irregular debts the older, established, and consistent debts are considered more valuable.
Newer debts even if you are making payments for the same asset but do not have steady payment history are not good for your credit score.
Cash-out refinances can further impact your credit score in two ways. The first being replacing the old debt with a new loan.
The second being taking up a larger loan balance could increase your credit utilization ratio. The credit utilization ratio adds up to 30% of your FICO credit score.
The larger your credit file the impact on your overall debt levels would be smaller, leading to the less potential impact of a mortgage refinance.
The vice president of mortgage lending at Guaranteed Rate Mortgage, Jennifer Beeston, suggests an alternative for the problem of multiple inquiries for a refinance.
She suggests It is best if you know your credit score, and to give your scores to the lender when you shop around.
This way each lender would not have to run your credit. Once you have zeroed down on the lender that you would like to work with, then they can run your credit and complete your refinance.
Thus having a single lender run your credit and refinance your home will not affect your credit score adversely.
Mortgage refinancing does hurt your credit score very badly, hence it’s advisable to take certain precautions.
Not refinancing or applying for credit too often will help.
Similarly when you shop mortgage rates concentrating the credit inquiries to either a 30 to 45-day or 14-day window and working strategically with lenders by avoiding having too many credits pulls will help.
Also, if you are not paying an old mortgage on time could be harmful to your score, also if you choose a cash-out to refinance it is not a smart decision.
Following these basic steps will keep your FICO score healthy, which, is most helpful for mortgage refinancing.
For credit-related to your mortgage avoid refinancing too often or applying too frequently, because refinancing hurts your credit score.
Limit your inquiries to a 14 days window when you are rate shopping.
It is always better to have an older debt that has a steady payment history than a newer debt.
It is advisable to avoid cash-out refinances if you can so you can maintain your credit score.
It is a financial term referring to the refinancing of a mortgage by a lender for a borrower who is currently in default on their mortgage payments.
Short refinancing of a mortgage is done by the lender for the purpose of helping a borrower avoid foreclosure.
A new loan amount is usually less than the existing outstanding loan amount, and the difference is sometimes forgiven by the lender.
Even though the payment on the new loan will be lower, sometimes a lender chooses short refinance just because it is more cost-effective than the foreclosure proceedings.
The lender may be forced to foreclose on the home when a borrower cannot pay their mortgage.
As we know the mortgage is a loan that is secured by the collateral of a borrower’s property, the borrower is obliged to pay back the debt with a predetermined set of payments.
As mortgage, is one of the most common debt instruments, it is used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front.
Over the number of years, the borrower repays the loan, along with interest, till the entire amount is paid off and they own the property free and clear.
If a borrower is unable to make payments on their mortgage, the loan goes into default.
Then the bank has a few options of which foreclosure is the most widely known option by the lenders, it means the lender takes control of the property, dislodges the homeowner, and sells the home.
However, foreclosure is a long and expensive legal process that a lender might want to avoid because they may not receive any payments for up to a year after beginning the foreclosure process and they will also lose out on fees associated with the procedure.
Some lenders may offer a borrower who is at risk of foreclosure the solution of a short refinance.
A borrower too may ask for this option of short refinance. These are advantageous for the borrowers – A short refinance allows a borrower to keep the home and reduces the amount owed on the property.
The downside of this being because they’re not paying the full amount of the original mortgage the borrower’s credit score will take a hit.
Among several alternatives to foreclosure a short refinance is just one of them, which could be more cost-effective for the lender.
Another possible solution is to enter into a forbearance agreement which is a temporary postponement of mortgage payments.
The borrower and the lender negotiate the terms of a forbearance agreement.
A lender could also choose for a deed in lieu of foreclosure that requires the borrower to deed the collateral property back to the lender meaning giving up the property in exchange for release from the obligation of paying the mortgage.
Suppose the market value of a borrower’s home dropped from $200,000 to $150,000, and he still owes $180,000 on the property.
With a short refinance, the lender would allow him to take out a new loan for $150,000, and the borrower wouldn’t have to pay back the difference of $30,000.
With this arrangement and he would have a lower principal and also, his monthly payments would be lower, which could help him better afford it.
Instead of going through a lengthy, expensive foreclosure, a lender may prefer to offer a short refinance to a borrower.
While a short refinance could leave a dent in the borrower’s credit but even late or missed mortgage payments will do the same.
A forbearance agreement or a deed in lieu of foreclosure may be considered by lenders as both may be more cost-effective.
A mortgage refinancing option, where, an old mortgage is replaced by a new one with a larger amount than owed on the previous loan is called a cash out refinance. This mortgage helps borrowers use their home mortgage to get some cash.
In the real estate market, refinancing is a popular process for replacing an existing mortgage with a new one that provides a more favorable term to the borrower.
You may be able to reduce your monthly mortgage payments, negotiate a lower interest rate, renegotiate the number of years, modify periodic terms, remove or add borrowers from the loan obligation, and potentially access cash when you refinance a mortgage.
To reduce one of your largest monthly expenses refinancing your mortgage is an ideal way.
When lending rates are falling toward new lows the investors who are watching the credit market will jump at the chance to refinance.
Mortgage contracts will have terms stating when and if a mortgage borrower can refinance their mortgage loan. There can be different types of options for refinancing.
Most of the refinance will come with several added costs and fees that make the timing of a mortgage loan refinancing as important as the decision to refinance.
The cash-out refinance is one of the best options for borrowers. all of the benefits that the borrower is looking for from a standard refinancing like a lower rate and potentially other beneficial modifications are all given by cash-out refinance.
With this refinance, borrowers also get cash paid out to them which can be used to pay down other high rate debt or fund a large purchase.
When rates are low, or in times of crisis, like the COVID-19 situation, when lower payments and some extra cash can be very helpful, this can be particularly beneficial.
The borrower finds a lender to work with. The lender assesses the previous loan terms, the balance needed to pay off from the previous loan, and the borrower’s credit profile.
Based on an underwriting analysis the lender makes an offer. Then the borrower gets a new loan that pays off his previous one and locks him into a new monthly installment plan for the future, this is how a cash-out refinance works.
With other standard refinance, the borrower would just get a decrease to their monthly payments but never see any cash in hand.
A cash-out refinance can possibly go as high as close to 125% of the loan to value. This means the refinance pays off what they owed earlier and then the borrower could be eligible for up to 125% of their home’s value.
The amount above and beyond the mortgage payoff is paid in cash like a personal loan.
As we know borrowers have many options when it comes to refinancing. The most basic mortgage loan refinance is the rate and term or the no cash-out refinancing.
Where you are attempting to get a lower interest rate or adjust the term of your loan, but no other change in your mortgage.
For instance, if your property was bought years ago when the rates were high, you might refinance in order to take advantage of lower interest rates that now exist.
The variables too may have changed, so now allowing you to handle a 15-year mortgage and saving hugely on interest payments.
With a rate-and-term refinance, you could lower your rate, and or adjust to a 15-year payout, but nothing else changes.
With Cash-out refinancing, you are allowed to use your home as collateral for a new loan and pocket some cash, creating a new mortgage for a larger amount than the existing one.
You receive the difference between the two loans in tax-free cash because the money is not counted as income by the government it is more like a mortgage-personal loan hybrid.
It is possible because you only owe the lending institution what is left on the original mortgage amount.
Any extraneous loan amount from the refinanced, cash-out mortgage is paid to you in cash at the time of closing that generally takes 45 to 60 days from the time you apply.
Compared to rate-and-term, cash-out loans usually come with higher interest rates and other costs like points.
Cash-out loans are more complicated than a rate-and-term and usually have higher underwriting standards.
A high credit score and lower relative LTV ratio can reduce some concerns and help you get a more favorable deal.
With a cash-out refinance, you pay off your current mortgage and enter into a new mortgage.
While with a home equity loan, you are taking out a second mortgage in addition to the original one, meaning that you now have two liens on your property, meaning two separate creditors each with a possible claim on your home.
A home equity loan closing costs are generally less than those for a cash-out refinance.
If you need a substantial sum for a particular purpose, home equity credit can be an ideal choice.
However, if you can get a lower interest rate with cash-out refinancing, and plan to stay in the home for a long time then the refinance probably makes more sense.
In both cases, make sure you do not default on the repayment, otherwise, you could end up losing your home which is collateral.
In a cash-out refinance, a new mortgage is taken with more funds than your previous mortgage balance, and this difference is paid to you in cash.
On a cash-out refinance mortgage, compared to a rate-and-term refinance, in which a mortgage amount stays the same you tend to pay a higher interest rate or more points.
Depending on bank standards, your LTV ratio, and your credit score a lender will determine how much cash you can receive with cash-out refinancing.
The process of revising and replacing the terms of an ongoing credit agreement that is related to a loan or mortgage is called refinancing or refi.
When a business or an individual decides to refinance a credit obligation, it is for the purpose of making favorable changes to their interest rate, payment schedule, and/or other terms outlined in their contract.
When they get approved, the borrower gets a new contract in place of the original agreement.
When the interest-rate environment changes the borrowers often choose to refinance, so they can save on debt payments from a new agreement.
Refinance is opted by consumers to seek certain debt obligations in order to obtain more favorable borrowing terms, which is more likely in response to shifting economic conditions.
Either for lowering one’s fixed interest rate or to reduce payments over the life of the loan, to change the duration of the loan, or to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa refinancing is done.
Borrowers may also refinance because of an improvement in their credit profile, or because of changes made to their long-term financial plans, or to pay off their existing debts by consolidating the debts into one low-priced loan.
The interest-rate environment is the most common motivation for refinancing. As interest rates are cyclical when the rates drop many consumers choose to refinance.
National monetary policy, the economic cycle, and market competition are some important factors causing interest rates to increase or decrease for consumers and businesses.
And these factors influence interest rates for all types of credit products, including non-revolving loans and revolving credit cards.
Debtors with variable-interest-rate products land up paying more in interest during the rising-rate environment and in a falling-rate environment, the reverse is true.
If they want to refinance, a borrower must approach their existing lender or a new lender and request a completely new loan application.
Refinancing happens when an individual’s or a business’s credit terms and financial situation are re-evaluated.
The common consumer loans that are considered for refinancing consist of mortgage loans, car loans, and student loans.
Mortgage loans on commercial properties are also sought for refinancing by businesses.
The business investors evaluate their corporate balance sheets for business loans issued by creditors so they can benefit from lower market rates or an improved credit profile.
There are several refinancing options. Depending on the needs of the borrower the type of loan is decided by the borrower. Some of these refinancing options are:
Being the most common type of refinancing, this refinancing takes place when the original loan is paid and replaced with a new loan agreement that consists of lower interest payments.
These refinance are common when the underlying asset that collateralizes the loan has gone up in value.
The transaction involves taking out the value or equity in the asset in exchange for a loan with a higher amount and higher interest rate.
Meaning, when the value of an asset increases on paper, then instead of selling it you can gain access to that value with a loan.
Though there is an increase in the total loan amount with this option but the borrower has to access cash immediately while he still maintains the ownership of the asset.
This type of refinancing allows the borrower to pay down some portion of the loan for a lower loan to value (LTV) ratio or smaller loan payments.
Consolidation of a loan may be an effective way to refinance in some cases.
When an investor obtains a single loan at a rate that is lower than their current average interest rate across several credit products then a consolidation refinancing can be used.
In this type of refinancing the consumer or business are required to apply for a new loan at a lower rate and then pay off existing debt with the new loan, by leaving their total outstanding principal with substantially lower interest rate payments.
When a company reorganizes its financial obligations by replacing or restructuring existing debts then the process is called corporate refinancing.
This refinancing is usually done to improve a company’s financial position and help the company which is in distress with debt restructuring.
With corporate refinancing, the older issues of corporate bonds are called in and new bonds at lower interest rates are issued.
When the terms like the interest rates, payment schedules, or other terms, of an existing loan, are revised a refinance happens.
When interest rates fall that is when borrowers tend to refinance. Refinancing requires the re-evaluation of a person or business’s credit and repayment status.
The consumer loan that is often considered for refinancing is mortgage loans, car loans, and student loans.
If you were thinking about refinancing your mortgage, make sure you read this post because there is a new mortgage refinancing fee coming up that you do not want to pay.
Refinancing could be a great way to save money on your mortgage if you do it the right way and if you don’t get slammed with the fees.
In August 2020, the Federal Housing Finance Agency (FHFA) announced that they are going to impose a new half a percent fee on lenders on all mortgage refinances that happen through Fannie Mae and Freddie Mac after September 1st.
This news was not taken well by many executives saying that this was a money grab and some of them said that it was a tax because it is going to make refinancing more expensive for homeowners who just want to save some money.
Surprisingly, the FHFA heard this and they backed off. Instead of tacking on this fee from 1st September 2020, they decided to tack this fee from 1st December 2020.
In simple terms that means that if you refinance your home after 1st December 2020, your lender might have to pay an additional half a percent fee, which means refinancing your home might become more expensive for you.
For most people refinancing is still going to be a smart move even if you have to pay this additional fee, but if you don’t have to pay an additional couple of grands why do it?
If you are planning on refinancing right now you have two options:
Since the interest rates are at their lowest, most of the homeowners are refinancing to lower their interest rates.
This will help the borrowers to not only reduce the interest rate but also change the tenure of the loan according to their monthly expenses.
You can also make additional payments over your new mortgage payments which can help you to pay off the mortgage in comparatively less time.
If you are looking to borrow additional cash on top of your mortgage balance, you can choose to do a cash-out refinance and use the additional money from your equity for your benefit.
The benefit of getting a cash-out right now is that you will get the advantage of the low-interest rate along with cash in hand which you can use for any purpose.
Make sure that you get a cash-out only if you can afford to repay. Because failing to make payments can result in property foreclosure.
The investment could be one of the options to use the cash so that you can get returns on the amount that you have borrowed.
The simplest thing that you can do to save money, save time, and shop around to find great deals is by using a mortgage comparison tool.
We at Compare Closing LLC help you to do a fair comparison with our mortgage comparison tool.
At Compare closing you can compare deals from different lenders and help you make an informed decision.
If you have multiple quotes from lenders all you need to do is use our mortgage comparison calculator to check which lender is giving the best of the deals on your refinance or purchase.
After your comparison, if we see that there is a better deal with one of our preferred lenders, you can request a free quote in no time.
Is this the right time to refinance? Of course, it is. With FHFA charging .5% on every refinance starting December 1st, 2020, and the rates being historically low, this is an opportunity that you should not miss.
Some lenders may tack the entire fee to you, some lenders may eat up this cost, and some may tack a portion of this fee.
However, why to pay this fee if you can refinance now and save that additional cost.
Make sure that you do your comparison before you refinance your mortgage with any mortgage lender or mortgage broker.
Since there are fees and closing costs involved in a refinance transaction, you need to make sure that you compare the mortgage quotes in the right way and let the lenders compete for your business.
Remember, when lenders compete, you win.
Refinancing in Texas is a process where a borrower replaces his old mortgage with a new one for a specific reason.
Now when you do that basically, it means paying off the old mortgage and creating a new one.
But to do that there has to be a prominent intention and a valid reason. An individual may opt for refinancing if he/she is looking to lower the interest rate, change the tenure, take cash out, or change the mortgage company.
There are pros and cons to refinancing, which we will discuss as well. First, let’s understand the reasons for refinancing in Texas.
There could be lots of reasons why an individual may opt for a refinance In Texas. Keeping in mind your credit history would be a major deciding factor in whether or not it is best for going for a refinance.
The primary factor before going for a refinance is to lower your interest rate. The interest rates are fluctuating on a daily basis.
If your current mortgage is on a higher interest rate and if the market rate considerably is lower than your current interest rate, refinancing can save you lots of money provided you have a good credit history.
If the market rates are going up, a good option would be to wait for them to lower down or get other options.
Your loan officer would be the best person to guide you with the best options available for you depending on the market and your current situations for refinancing in Texas.
Many people refinance to change the tenure. For example, if you purchased a home on a 30 years note and now you are ten years into the loan, and if you want to change the tenure to 15 years note, refinancing would be a smart move for you.
In this case, you may not only save on five years of monthly payments but also may get a lower interest rate, as the interest rate on 15 years mortgage is more economical in comparison to 30 years.
Again refinancing in Texas is subject to market conditions on interest rates and your credit history.
Yes, you read it right. There are individuals whose only reason to refinance could be to change from Adjustable Rate Mortgage (ARM) to a conventional one.
And it could be a wise decision as well. The interest rate on an ARM loan is usually fixed for a few years, and after maturity, it is adjusted according to the market conditions.
So if you have an ARM loan, it would be best to refinance before it reaches maturity. Once it reaches maturity ARM loans can offset your interest rate above the market conditions, doing so, increasing your monthly payments.
Hence, refinancing in Texas to change from an adjustable-rate to a fixed rate could be worth the money.
Getting a cash-out is one of the major reasons why an individual might go for refinancing. Going for a cash-out refinance could be a little tricky.
Because it adds up to your loan balance hence, increasing the monthly payments.
Usually, the interest rate on cash-out refinance is higher than a conventional rate and term.
That’s why it is advisable to go for this type only if you are in dire straits. To qualify for a cash-out of refinancing, you must have enough equity in your home to pull the desired amount of cash.
In addition to that, an individual also needs to have a good credit history. The maximum cash-out an individual can pull out is up to 80% of the property value.
Now this 80% will also include your previous loan balance and the closing costs.
Below is the table with an example to understand better. Cash-out refinancing in Texas has different guidelines compared to other states in the country.
We all have gone through financial discrepancies with our banks/lenders at some point in time.
Not enough to change the bank/lender. But some of you may have had these at a level where the only option was to change your current mortgage with a different lender or bank.
In this case, a borrower can select a bank or lender, approach them, and get a refinance done through the new bank or lender.
Knowing the reasons for refinancing in Texas is only the beginning of the refinance process. Once you have a valid reason for refinancing, you can get in touch with your trusted loan officer to know your refinancing options that are unique to your situation.
By having all the knowledge available to make a well-informed decision, you can have peace of mind and comfort once you are aware of the reason for refinancing in Texas.