REFINANCING
HOME MORTGAGES
Should I refinance now?
Before you consider refinancing your Florida home
mortgage, you'll want answers to some very important
questions. That's why the following information is so
valuable.
Why should I refinance?
Your first objective is to determine the reason or
motivation behind your decision. Lowering your rate
to reduce your monthly payment, taking cash-out proceeds
to consolidate debt or do renovations, locking-in to
a fixed rate mortgage if you currently have an ARM (adjustable
rate mortgage) loan, reducing your amortization from
30 years to 15 years, and removing a co-borrower would
all be reasons to refinance. Before we give you some
tips to consider, let's briefly discuss the types of
Florida mortgage refinancing available.
How Should I Refinance?
There are two basic types of mortgage refinancing opportunities.
The first type is a no cash-out refinance. This method
of mortgage refinancing allows you to include in the
new loan the payoff of the existing mortgage, closing
costs, and escrow costs.
Locking-in to a fixed rate if you have an ARM (adjustable
rate mortgage) may be advantageous for those who are
facing increases or fluctuations in their ARM loan.
Monthly payments may not improve for this borrower but
peace of mind in knowing that your payment will not
increase for the life of the loan may reduce some stress.
Reducing the amortization from a 30-year loan to a
shorter period of time may make sense to individuals
who would like to be mortgage free. This amortization
reduction may also be wise for those that have already
paid down the principal balance for several years. If
you have 20 years left on a 30-year mortgage you may
want to consider a new 20-year mortgage or even a 15-year
mortgage.
Does mortgage refinancing make sense for me?
Okay, we have determined our objective, so now let's
look at some numbers. These figures are hypothetical
because each loan is subject to your personal situation.
If your reason for mortgage refinancing is a lower interest
rate and a lower monthly payment, the analysis is very
straightforward. Closing costs divided by the monthly
payment savings equals the number of months it would
take to re-coup the closing costs. Let's assume your
closing costs are $2500 and your payment is reduced
by $150 per month. The payback period for this loan
would be approximately 17 months. If you plan on staying
in your home for 17 months or more then it makes sense
for you to consider a refinance. If your objective is
to pull cash-out of the equity of your home the example
above becomes less critical. Paying off debt, updating
and renovating your property, and other factors may
be more important to this borrower.
When refinancing to conventional home mortgages, a
maximum of $2000 cash back to the borrower(s) is allowed
to remain classified as a no cash-out refinance. When
refinancing to FHA or VA loans then the borrower is
limited zero cash back at closing. No cash-out re-fi's
are typically limited to a maximum loan to value of
95%.
The second type of mortgage refinancing is a cash-out
refinance. The cash-out re-fi allows the borrower(s)
to include into the new loan the current payoff of the
existing mortgage, closing costs, escrow costs, and
also receive cash-out proceeds that exceed $2000. Cash-out
re-fi's are typically limited to a maximum loan to value
of 90%. Interest rates can vary between these two types
of refinancing.
A final consideration for refinancing home mortgages
is to remove a co-borrower from the note. This co-borrower
may be an ex-spouse, parent, or someone who was nice
enough to co-sign for you in the first place. This borrower
may be obligated to the co-borrower to remove them from
the liability of the note.
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