5 reasons to refinance your mortgage
A few weeks ago, I wrote about how I refinanced my mortgage for the second time in a year. The second refinance wasn’t actually part of my master plan, but I ended up having to refinance in order to remove my private mortgage insurance. And although refinancing our home again proved to be a huge pain, we are now saving $135 per month by no longer paying private mortgage insurance premiums.
Thankfully, we managed to secure a no-cost refinance that only cost us in time and effort. It’s a huge relief that the process is finally over, and I am fairly hopeful that this is the last time we will ever have to refinance.
Refinancing Has Its Perks
Luckily, I am no stranger to the benefits of refinancing. Not only did we refinance our primary residence, but we also refinanced our two rental homes within the past 18 months. We did so in order to take advantage of record low interest rates and to shorten the terms of their loans.
Now that we have refinanced our rental properties, they will be paid off much faster. In fact, our two rental properties are due to be paid off in about 13 years. Once they are completely paid off, we will then have another (somewhat) passive income stream and will be that much closer to our lifetime dream of early retirement.
Since I have refinanced properties so many times, I decided to write about some of the reasons that people choose to refinance. Like me, you may find that refinancing could save tens of thousands of dollars in interest and years of mortgage debt repayment. Unfortunately, it does take some effort to get the process started. However, the time and effort spent could easily be worth it depending on your situation. Here are some reasons that you may want to consider refinancing your home loan.
5 Reasons You May Want to Refinance
Refinance to shorten the term of your loan. If you have a 30-year mortgage, now may be a great time to consider refinancing. With record low interest rates, you may find that a 15-year mortgage is not much more expensive than the 30-year loan payment you have been paying.
Start by entering your information into a mortgage calculator to see what your new payment might be. If your new estimated payment is feasible, consider contacting a mortgage professional. (When we first refinanced our home from a 30-year mortgage at 5 percent to a 15-year mortgage at 3.25 percent, our payment only increased by about $200. Since the increase fit easily into our budget, the decision was a no-brainer.)
Refinance to lower your interest rate. As I mentioned before, interest rates are near a record low. And as I write this, 30-year mortgage rates are hovering above 3 percent and 15-year loans can be secured for an even lower rate. If your home is now financed at a higher interest rate, it may be a great time for you to consider refinancing. You could literally save tens of thousands of dollars just by taking the time to fill out the necessary paperwork and gather the needed documents.
Refinance to lower your payment. Refinancing your mortgage at a lower interest rate could mean drastically reducing your payment and saving tens of thousands of dollars in interest. Lowering your mortgage payment could also free up hundreds of dollars per month that could be saved or invested. Although refinancing to lower your payment could increase the term of your loan, it could make sense in your particular situation.
Refinance from an adjustable-rate mortgage to a fixed-rate loan. If you currently have an adjustable-rate mortgage, now may be the perfect time to refinance into a fixed-rate loan. Interest rates are low now, but they may not stay this low forever. Locking into a low, fixed rate can protect you from rising interest rates in coming years. Additionally, a fixed payment is easier to plan for and budget.
Refinance to cash out home equity. It’s a tempting proposition to cash out your home equity by refinancing your home. It could even be a great financial move in some circumstances. For instance, it may make sense to cash out some of your home equity in order to buy an investment property or start a business. It mostly depends on what you are trying to achieve and if you are someone who can manage your debts responsibly.
Can Refinancing Help You Meet Your Goals?
Before refinancing, consider what your goals really are. Do you want to lower your monthly mortgage payment? Do you want to pay off your mortgage and get out of debt faster? Only you can answer these questions.
It is also important to take all closing costs and fees into consideration. Depending on which new loan you choose, you may have to pay thousands of dollars in fees for your new mortgage. It may take several years to recoup the costs of refinancing, and it is important to identify your breakeven point. If you plan on moving in the near future, it may not make sense to refinance your home loan at all.
Do You Even Qualify For a Refinance?
Due to government-backed programs, you may be able to refinance your home even if you owe more than your home is worth. The Home Affordable Refinance Program, known as HARP, loosens requirements for traditional refinancing. According to MakingHomeAffordable.gov, your loan must meet several requirements in order to qualify:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
Consider Refinancing Decisions Carefully
There are many things to consider before refinancing your mortgage. Most importantly, you should weigh the pros and cons of your particular situation and act according to your own best interest. With some thorough research and planning, refinancing your mortgage could turn out to be the best thing for your family and for your pocketbook. Have a look at the table below for the best mortgage rates.
Have you considered refinancing your mortgage? If so, why did you decide to refinance? If not, why haven’t you?
Become A Money Boss And Join 15,000 Others
Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)
There are 71 comments to "5 reasons to refinance your mortgage".
I’m glad you say to weigh the pros and cons because, while refinancing may save many (or even a majority) of people some money, it isn’t for everyone.
I would love to refinance my townhouse at a lower rate, but with only ~$60k due on the mortgage for 28.5 more years it just isn’t worth it. I’d get about a 1% lower interest rate but the closing costs would make the payoff time be many many years in the future and I don’t think it is worth it at this point.
However, if my parents can qualify to refinance I think they’d be prime candidates to save a ton of money.
Yesterday, HSH.com released a new calculator that shows you how much extra you need to pay in order to lower your effective mortgage rate. This is good for those with low balances, like yours, Lance. http://www.hsh.com/lowerrate-prepayment-calculator.html
We refi’d about a year and a half ago down to a 15 year loan. The interest rate drop was big enough that the 1 extra monthly payment/year we were making by using bi-weekly payments on the 30 year mortgage we had previously covered the entire increase in mortgage payment. So the only real cost was the closing cost, which was the equivalent of about 4 months of mortgage payment. So we basically shaved off 8 years of paying off the mortgage by paying for closing cost equivalent to the amount of 4 months of mortgage. The yearly payments were exactly the same. It was an absolute no-brainer.
I’ve refinanced to lower payments and most recently, to increase current cash flow where the overall costs were pretty much a wash. My best refinances both lowered the interest rate and allowed me to shorten the loan with a lowering the monthly cost.
Refinancing can be a hassle and they’ve made it harder, the wife and I each had 750+ credit scores, a home worth more than twice the loan amount even after the bubble burst, stable jobs, no other debt, went through our local credit union, and they still had us pulling documents and providing all kinds of statements because they’re on the hook now more than ever. So just be prepared and keep your end goal in mind.
That said, always run the numbers, both the totals and payment. If you extend your payoff date by two years even if you drop the payments and the overall interest paid out, that two years is still likely tens of thousands out of your pocket and may actually end up costing you more in total. If the numbers require you funnel savings back into payments, be honest with yourself if you will really do that or find excuses. Can’t stress enough looking at the total package and then comparing to your goals.
You are so right. The process is much harder than it used to be. We had to submit and resubmit countless documents and had to verify all kinds of things that we didn’t have to in the past. It was a pretty intense process considering the fact that we have no other debt and long term careers.
This is what I’m worried about. I have a phobia of paperwork. I still have flashbacks to when I bought my house….I swear I sent in duplicates and triplicates of everythihg. I hope even the more hectic refis aren’t as tedious as THAT. I’ve never done it before so I’m just hoping it’s less.
What gets me with all the extra documentation is that many lenders still want a certified check at closing. It’s kind of funny to think that I provide years of tax statements, months of bank statements, income/employment verification, and credit reports, yet they still don’t trust me to write a personal check.
We were told that our bank wants a certified check only if it’s over $3,000. They would take a personal check if it’s under.
We’ve refinanced twice – once in 2009 and then 3 months ago last December. I actually found the paperwork process was much easier the second time. I sent in 2 months of bank statements, 1 print out of my ING balance, and W-2’s. We ended up moving closing out another 2 months, my husband lost his job in the middle of the process, we changed from a 15 year to a 30 year after we applied, and still didn’t need any additional documentation – it took about 3 phone calls that lasted maybe 5 minutes each. The initial form was filled out online. It was really very easy and painless! I’m sure some of it was because we stayed with the same bank the second time.
We were going to refinance our current house, but now that we know that we want to move within the next 2 years, we aren’t as worried anymore. Sometimes I do wish we would have refinanced when rates were at their lowest though!
I refi’ed my house 22 months after buying it. You might still want to looking into the savings you’d get for a refi, even if you’re moving in a couple years. You might be able to save thousands in that short time.
Agreed. If you can shave 0.75% or more, you can often break even in less than a year.
I refinanced a year or so ago to get a lower rate but kept the 30 year mortgage since it is a rental. My rate is a tracker and I think rates will eventually go up so will try to switch again to a fixed rate this time. I switched online with the same bank and had no paperwork at all to provide, just online signature, switching bank as well makes the process a lot more complicated.
It doesn’t make sense for us because we are making at least double (usually triple or more) payments on the principal every month and expect to pay it off within the next five years. Wouldn’t be worth the time and costs for us. For most people though who plan on keeping their mortgage for the full term or close to it, it’s a good idea.
Depending on your interest rate and closing costs, it still may be worth it. There are a lot of helpful online calculators that let you figure out the savings or lack of savings to see if its worth it.
JM, I’m with Sam, and suggest you at least look into it. Let’s say you do the research and will “only” save $2000 in the last five years of your mortgage. Given that I wait to buy dish soap until it’s $.50 off, or use $2 coupons for pizza, I can’t imagine not refinancing because I’d “only” save a few thousand.
We refinanced this year to cash out some of the equity of our home (went to pay off higher interest debt) and to get rid of PMI.
We initially had put down 3.5% through an FHA loan but because we did major work on the house, we were able to get it reappraised much higher so that our loan balance was 73% of the home’s value rather than 96.5%. Even borrowing that extra 7% (up to 80%), because of dropping PMI, our payment stayed the same.
I know not everyone is in the position of their home’s value going up, but for anyone who has bought a fixer-upper and actually fixed it up, this is a good option, especially if you have higher interest debt like student loans.
We are in the process of refinancing now. We should be able to lower the interest rate by 3% (but keeping a 30yr mortgage). We are also saving almost exactly half of the amount we are now going to be losing per month to sequestration so this was very good timing for us.
I refinanced into a 5/5 ARM about 18 mo ago because I could get over 1% reduction for the 3 years I needed to pay it off at <1% closing costs. I could get a lower rate now, but will only 16 mo left I wouldn't save anything.
Right on! My wife and I refinanced a year ago and man, we’ll end up paying less in the end! Woot Woot! It’s weird for people not to refinance, honestly!
Are there any suggestions on refinancing with a fixed versus ARM? I am looking to pay off my mortgage early. I only have about 55,000 left.
Is it better to get the fixed and make extra payments? or get the ARM (lower rate) and make extra payments?
Have never seen any discussion on this so just wondering?
Only 55K left? Great job!
There is probably more than one right answer. However, I would probably just refinance into a fixed loan. That way you can lock in a low rate and not have to refinance again in the future.
How long will it take you to pay off the house? If your plan has you paying off the $55,000 in 3 years, then I’d think a 5-year ARM might be fine. You’d still have some wiggle room before it reset if something threw your plan off. If your plan is 7 years, maybe a 10-year would be okay. If it’s longer than about 7 years, I’d get a fixed rate and be on the safe side.
We refinanced last year (went from 28 years left/4.375% to 30 years/3.875%, no closing costs, and pay the monthly difference into our new loan) and I’m waiting to see what will happen with rates when we’re eligible to refi again next month. We’re adding an extra $700 to our mortgage payment (expect payoff in 17-18 years), and if I refi into a 15-year at 3% our payment would only be a couple hundred higher than what we’re currently paying. I’d also have several hundred dollars more in principal than interest compared to where we’re at now. Going to wait and see how taxes/raises pay out before I make a decision on it.
I have a buddy who could absolutely benefit from refinancing his mortagage (probably save at least 3%) but some reason won’t take the time… it boggles my mind!
To me, having to fill out the paperwork and spending weeks sending in extra documents, etc., is not worth the 3% savings. When we refinanced a few years ago, it was a stressful, time-consuming PITA. While we reduced our monthly payments by quite a bit, it was enough of a hassle that we said we’d only refinance again if the rates reached a ridiculously low amount.
For some people, the hassle of jumping through hoops to save a few bucks isn’t worth it.
Great breakdown, thanks for your insight, Holly. Great post!
Thank you for writing this article. I’ll be refinancing at the end of the year, but in my case I’ll be starting over with a new 30 year term (I currently have 24 yrs left). My PITI is 19% of my income, the mortgage alone is 14%, but I want to refinance to take advantage of the lower interest rate. I’m at 5.375% due to not having much credit when I got the mortgage, but I have the credit score now, and the interest rates have been riding at up to 3% lower…which would save me over $100/ month.
I intend to pay the house off quicker than 30 years but my shorterm goal is to get my DTI and expenses as low as possible because I will be buying my first rental property next year and don’t want anything to hurt my qualifications. I’m currently single so I only have a one-income household (but multiple streams), so I need to be able to float two mortgages effortlessly during vacancies…and of course have massive savings.
Ideally I’d like a second rental property in 3 years, before I start paying down my primary mortgage….so that would be 3 mortgage total I expect to carry in the next 3 years. I know it’s taking some time for the market to come back, but I still get the feeling that time is of the essence so at this stage it’s higher on my list to corral my herd before I focus on paying them off early.
We refinanced our primary home twice, in 2009 from 6%+ to 4%+ and went from 30 year loan to 25 year loan, trimming a year from our term. Last year we went from 25 year to 15 year, and got a 2.75% rate and trimmed 6 years from our term for a savings of $180,000. There are lots of great calculators that you can use to run the numbers to see the benefit of a lower rate or lower term vs. closing costs.
We refinanced one rental property from a 6% to a 4% a couple of years ago and rolled the closing costs into the loan so the tenants are paying the closing costs.
We have another rental property that I’d like to refinance since its adjustable, although the adjustable rate is super low so its not an immediate need but I’d prefer to lock that it. Its been on my to do list for a while but I think the property is so underwater it won’t appraise. I still should look into it.
Sam,
I was actually able to refinance one of my rental properties through HARP. I used Quicken Loans and since it was a HARP refinance it didn’t require an appraisal. I did the same thing as you. I wrapped the loan costs into the new mortgage so that my renters paid for the refinance.
I was very surprised that a rental property could be refinanced through HARP, but it’s true!
This is copied and pasted from FreddieMac.com
HARP Eligibility
You may be eligible for HARP through your existing lender or a different participating lender if you:
Own a 1- to 4-unit home as your primary residence, a 1-unit second home, or a 1- to 4-unit investment property.
Are timely making your mortgage payments.
Choose a fixed-rate mortgage or an adjustable-rate mortgage for your new mortgage. If you choose a fixed-rate mortgage, you can refinance the entire amount of your existing mortgage regardless of the value of your home, but if you choose an adjustable-rate mortgage, you cannot finance more than 105 percent of your home’s value*. If your existing mortgage is a fixed-rate mortgage, your new mortgage must also be a fixed-rate mortgage.
I’d love to know how to get a “no cost” refinance that the author refers to, because I don’t think there’s any such thing. This article would have you believe that refinancing is so much easier now, but for the many people that are “underwater” the opposite is true. The HARP program is so restrictive that it can’t help the people that need it the most. Unfortunately, not much has changed. The big banks still refuse to help the people that need help the most.
You can read about my no cost refinance here:
https://www.getrichslowly.org/the-hassle-of-being-in-debt/
Basically, my new mortgage company offered to pay all of my closing costs and fees in exchange for me paying a higher interest rate. In my case, the higher interest rate was 3.25% which is what I was already paying on my old mortgage. I refinanced to get rid of PMI.
Believe it or not, it really was a no cost refinance. I did have to show up at closing with the amount needed for my escrow account. However, I was refunded the money from my old escrow account so it was mostly a wash. I actually came out ahead $40.
I agree with Holly – I didn’t believe they existed either, until I started working with someone who offered them. The rates are probably .125% to .25% higher than you could otherwise get, but it was completely worth it to me.
The only thing I had to pay for was the appraisal (~$200), but it is absolutely worth it to me to be able to refi any time I want to if the rates drop (even as little as .25% saves me about $500/year on a $200K loan).
Because of a nearly no-cost refi I was able to refi a 30 year fixed in 2010 from 5.25% down to 4.5%.
Then in 2011 I went from a 30 year 4.5% to a 30 year 3.75%.
Then last year I went from a 30 year 3.75% to a 15 year 3%.
In each of those refis I start saving about $150/month, so it pays for itself after 1 month.
I too refinanced from a 30 to a 15 year loan and my bi-weekly payments are almost exactly what they were for the 30 year bi-weekly payments.
“Refinance to shorten the term of your loan …
Refinance to lower your interest rate.”
These are really the same thing. There is no advantage to shortening the term of your loan unless you get a lower interest rate. (Unless there is a penalty for paying the longer loan off early).
“Refinance to lower your payment. Refinancing your mortgage at a lower interest rate could mean drastically reducing your payment and saving tens of thousands of dollars in interest.”
Or it can mean paying tens of thousands dollars in additional interest. If you have 20 years left on a 30 year mortgage and refinance to a new 30 year mortgage, your payments will be much lower. But you will end up paying more interest overall.
That lower interest rate can mask the actual increase in your overall costs. You think you are saving on interest, when you are really reducing your payments on the principal.
“Refinance to cash out home equity. It’s a tempting proposition to cash out your home equity by refinancing your home.”
I think many people learned during the housing bubble that borrowing money against your house is not taking “cash out”, its just adding to your debt. Its usually cheaper than using a credit card, but no different otherwise.
We refinanced our home twice. The first time was when our equity had increased to the point where we no longer needed mortgage insurance. This is usually a no-brainer.
The other was to refinance at a lower rate. We also went to a 15 year loan because the interest rate was even lower. The costs of refinancing were more than recovered and the lower house payments (even after shortening the mortgage term) were appreciated. Because we shortened the term of the loan, our overall costs were reduced. We had fewer future payments that were lower.
I am debating on a refinance right now for our rental property. The only thing I don’t like about it is all of the fees!
The “no-cost” mortgages aren’t really no-cost. What you are doing is borrowing the closing costs and folding those costs into your loan. The interest rate is a little higher to compensate for that. When I financed, I paid the closing costs up front because I had the money and did not want to pay a higher interest rate.
Actually, that isn’t the case. My lender offered enough credits to make my refinance cost me nothing. The fees weren’t wrapped into my loan.
Not all lenders offer this type of refinance but some do. In my case, all I had to do was pay a higher interest rate which happened to be 3.25%.
“My lender offered enough credits to make my refinance cost me nothing”
“all I had to do was pay a higher interest rate which happened to be 3.25%.”
Are you sure that higher interest rate you paid cost you “nothing”?
Yes, Ross =)
My old loan had an interest rate of 3.25%. I refinanced to get rid of the PMI. My new loan was a no cost refinance. However, in order for the lender to pay my closing costs I had to agree to a higher interest rate. In my case, rates had gone down since I had last refinanced. Therefore, the higher interest rate I took was 3.25%, the same rate that I had been paying.
The good news is that my new loan is at the same interest rate, minus the PMI =)
So you’re totally against paying PMI, but you’re not against paying a higher interest rate?
I understand that we all have different money philosophies, but paying either more money in interest or more money in PMI is still more money. Depending on the situation I know that PMI may or may not be tax deductible, which makes a difference, but on principle… you’re still paying more.
Hey Sara, I refinanced to remove my PMI but with the same interest rate. My old loan and my new loan were both at 3.25%.
You are comparing your old mortgage and new mortgage. They way I’m understanding it, for your new mortgage you were offered a lower rate (3%?) and PMI plus closing costs, or a higher rate (3.25%) and no PMI and no closing costs. So given the choice, you’re paying a higher interest rate to avoid PMI and closing costs. So my point is – whether it’s more in interest, or more in PMI – you’re still paying more. And you’ve just chosen to pay more in interest rather than PMI and closing costs.
No, I actually wasn’t offered a different loan at all. I only applied for the loan that I took out. My old home loan was financed at 3.25% and I was still paying PMI because my old lender wouldn’t remove it due to a technicality. I wanted to remove PMI since I had more than 20% equity in my property. I did a no cost refinance with Amerisave at the same interest rate, 3.25%, minus the PMI. I suppose I could have paid closing costs and refinanced at a lower rate, but I still wouldn’t have had PMI because I have enough equity in my home to get a loan without it.
“The interest rate is a little higher to compensate for that. ”
Exactly. The closing costs are included, they just aren’t detailed as costs. Holly still came out ahead. But she was paying the closing costs with a higher interest rate.
Holly – Pennysaved point still holds that they did get more money out of you by getting you to accept a higher interest rate. It is neither here nor there whether it was the same as you already had minus the PMI. It was a higher rate than you could have gotten. I wonder if it would have been beneficial to have run the numbers on the refinance with the closing costs upfront? You might have come out ahead eventually if this was a home you were going to be in for the duration. The main reason people get loans “without” closing costs (even though they technically are paying for them) is because they don’t have the cash upfront to pay them. I’m assuming this wasn’t the case for you.
But 20/20 hindsight and all that 🙂
I know what you’re saying. However, I only refinanced to remove the PMI, not to lower my interest rate. I was fine with 3.25% and was satisfied to refinance just to remove the private mortgage insurance. I did’t save any interest by refinancing, but I did save about a year of private mortgage insurance premiums($135 per month). I am very happy about that!
Regardless of where the numbers would have ended up, 3.25% is a fabulous rate and the refinance well worth it to get out from under PMI.
The 15-year fixed home loan average is 2.72%. So 3.25% is not a “fabulous rate”. Its a half point above average.
Ross – I meant historically it is a very good rate. In this current world of extremely low rates, I find people getting upset about percentage point differences. We did it as well when we were trying to refinance. But it’s important to keep in mind that come 10 or 20 years when rates go back up, 3.25% will be a very good rate. Heck, it’s a good rate now. While perhaps she could have done better, she didn’t do poorly, and we should not overstress the supposed losses she incurred by making the decision she did.
Perhaps someone can run the numbers on the difference between this supposed 2.72% you think she could have gotten versus the 3.25% she did get over the course of a 15 year mortgage on, say, $150,000? MINUS the $3,000 she would have paid in closing costs? It’s probably not chump change, but I don’t imagine it’s going to make a huge difference in her financial future.
Plus we had over 800 on both our credit scores and we weren’t able to obtain the lowest supposed rate at the time. If we couldn’t, I don’t know who can, honestly, so we’re probably quibbling over .25% here.
Jane –
To answer your question:
150M 15yr 3.25% $1054/m Interest: $39,720.57
150M 15yr 2.75% $1018/m Interest: $33,227.84
I think the best way to look at that is how much in fees could you roll into the loan at the lower interest rate and end up with the same result.
If you added $5000 in fees to the $150M mortgage at the lower interest the payment would be $1052.
So the effect of a .5% higher interest rate on a $150M 15 year mortgage is essentially equivalent to $5000 in costs rolled into the mortgage. Of course, the smaller the mortgage, the less important the interest rate is.
I tried to refinance, but my balance ($55,000)is too small. Instead, I am making additional principal payments.
Right. The mortgage company is making money on the refinance and the associated fees are being paid by someone. It’s very misleading for mortgage companies to advertise that there’s “no cost”. There might be no cost up front, but in the long run the mortgage company is going to make money. It’s just a matter of when they get it.
Holly, i read the first post and contacted quickenloans and amerisave. Amerisave didnt give me the time of day because of the estimated value of the home. I didnt have enough equity for them. My goal is to get a lower mortgage payment. I need to pay off my credit card debt so i need to free up as much cash as possible to throw at the debt. quicken loan worked something out for me. I have two loans 1@ 287,550 (6.625% interest only) and a 2nd loan 68,555 (4.92% ARM). So quickenloans will combine both loans into a FHA loan at fixed 3.75% for 30yr. Neither one of my loans were FHA loans. I cant avoid the PMI though, my appraised value is 400K which is not enough for them to drop the PMI. I dont have any cash to take to closing so i am looking at a lower mortgage payment by $300. Which i am happy about. but i am concerned about how hard it will be to drop that PMI when the equity gets to 80% of the loan.
Sorry about all the numbers and long message. I have been reading the comments and I hope my experience will help others also.
We refinanced one of our rental properties with Quicken Loans and they were amazing. All of the process is done online and they even send someone to your house to do the closing!
I hope it goes smoothly for you and good luck on your debt repayment!!!
Thanks!
@Holly – I am a mortgage lender. I have come across people who are extremes. Someone who is getting a substantial savings but wouldn’t refinance because he is stuck on a certain rate he wants. Or someone who is willing to refinance because he is getting a .25% better in rate and saves $45 in monthly payment. Not realizing the cost associated with the refinance and/or resetting of the 30 year term.
I have written hundreds of posts on topics related to mortgages. Must say, this is one of the best posts I have read on the topic of refinancing.
Yup. It cannot hurt to do the research even if at first look, you think you’re ineligible. I’m in the process of refinancing two high interest mortgages through two different programs even though I thought neither would be eligible.
Good post–one mortgage refinance can make a bigger impact on saving for financial independence than, say, cutting back on lattes. You are a huge step ahead of me in that you own investment properties! I am looking to buy my first one late in the summer.
One year ago, 3/2012, we refinanced our mortgage under the Harp 2 program. The bank solicited us and said there would be 0 closing costs and we could drop our 30 year mortgage down to 15 years AND drop our interest rate of 5.75% to 3.25. We thought it was a scam. Researched it and learned it was legit. Easiest “closing” we ever did. The bank did all the paper work, mailed it to us, we read it and signed off. 2 weeks later the deal was done and we didn’t pay a single dime to do this. Serioulsy – this is exactly what we were able to do. Frankly, I wouldn’t have believed it if we hadn’t personally lived thru it. Might be something worth checking out.
But I do agree with a previous poster that those Harp programs do NOT help the people whom they were allegedly designed to help.
We bought our house in December 2011 and had a 264k 30 year at 4.25%, we then refined in October to a 25 year at 3.375 and down to 260k. Kept the same payment about 1200 and knocked 4.5 years off the mortgage and saved a bunch in interest. All for about $700.
I checked on fatwallet for who had the best rate and compared to cost of vendors too. Ended up going with Provident,
If we would of waited abut 3 weeks we could of done the same refi for free as they had a bigger discount on points then and it would of covered all the closing costs.
Well, the examples here show predatory lending is back. Can the housing market be too far behind?
For those who forgot or weren’t around:
Lenders are not “professionals”, they are sales people.
A lot of what passed for financial advice during the housing bubble was really just a marketing pitch.
If it sounds too good to be true, it IS too good to be true.
There is no such thing as a free lunch. There is also no such thing as a “no-cost” loan. A more accurate description is “hidden-cost”.
The only way to take “cash” out of an investment is to sell it. That is as true for a house as it is for stock or a money market share. Anything else is just borrowing money with the house as collateral.
We would love to refinance, but so far have been unsuccessful because I am self-employed. They don’t even seem to care about the *amount* of my income, just that it was not given to me by a corporate overlord.
I was told that my income was “completely worthless” (really? Because my mortgage company and utility providers take it just fine!), and one charming individual told me I should close my business and “get a real job.”
Unfortunately, our mortgage was sold to a loan servicer a few years back and since they do not originate mortgages, we cannot refinance with them. That seems to be how my self-employed friends got around this — they refi’ed with their existing bank, with whom they already had a relationship.
So it appears we are stuck. 🙁
Just wanted to say thank you for this article. Thought we were SOL when it came to being able to refinance since our current lender has no options to refinance unless it’s a financial hardship and we’re not under Fannie or Freddie so we didn’t qualify for that option either.
Gave a couple online lenders (reputable) ones a look and found out we’re eligible for an FHA streamline and dropped our rate from 6.125% to 4% and we’re saving $330/month!
Hooray for the internet.
Awesome! That is a huge savings! Which mortgage company are you using?
Quicken Loans. Great to deal with so far.
Mortgage rates have come down this week so hopefully more homeowners will look to refinance. HARP loans are a great option for those who qualify.
Nice post, I bookmark your blog because i found very good information on your blog,I am also find the best way to Refinance your house. This is great time to family.Once again thanks for sharing- more information.
Hi, I bought a new home in Oct with a 15 yr fixed mortgage. But due to some last minute appraisal issues, the appraisal came in little short and I have to pay 150+ PMI. Now the prices have gone up in our community an our house can be easily appraised higher now.
I talked to my mortgage agent, who helped me the first time, whether I can re-finance to get rid off the PMI. But she says that, while refinancing if I am not changing the term, i.e., going from 15 yr fixed to 15 yr fixed, if the drop in my monthly payment is not more than 5%, then I can not refinance.
My question is, is this true. If yes, is there any way around it to get rid off this PMI.
Appreciate your help….
Hello all,
My wife and I are currently seeking to pull out some of the equity in our home to remodel our kitchen and bathrooms. We are torn on whether to take advantage of a home equity loan or cash out refi.
We currently owe approximately 190k and we believe our home to be worth approximately 270k. We are locked into a 30 yr fixed 3.5 VA loan. We are looking for 40k.
Navy Fed is offering 20 yr fixed hmeq loan at 9.25%. Approx pymnt is around $310 with very minimal closing costs.
Our other option is thru Quicken Loans, which is offering 30 yr fixed va at 3.75…giving us the full 40k as well. They are requiring a $500 appraisal fee upfront, but are insisting the closing costs are included in the loan. Aprox pymt is $1260…which is approx $120 higher than our current monthly.
I felt great after speaking with Quicken, but after reading their BBB reviews, I’m extremely apprehensive. My gut tells me to keep the 3.5 fixed we currently have and go with Navy Fed.
Can anyone please give me some guidance or advice on which direction may be better suited for us. I greatly appreciate any response and tried to keep this as short as possible. Thanks so much!!
I am refinancing my home from a 20 year fixed rate mortgage to a 10 year fixed rate mortgage, we owe 50,500. But we are throwing in around 6k in credit cards and of course the 2400.00 refi cost. We were at a 6.5 % interest rate down to 3.5%. We are 50 years old so we want our house paid off at 60 or less. we are going through our credit union to refinance but they told us that they will sell our mortgage to Fannie Mae – is this wise for us to do this ?
Hi, I run a retail store in Hampden County, and one of my suppliers said he got his mortgage loan converted from an adjustable to a fixed-rate mortgage loan by a credit union in Ludlow.
I think that’s exactly what Holly has explained here: converting from adjustable to fixed rate loan. Plus, you mentioned “credit union” which is something you can cash in on, considering their comparatively lower rates than banks and plethora of member support services.