Options for Refinancing Your Home
Favorable interest rates are still attracting homeowners to refinance their homes. One of the more popular choices among consumers are the rate-and-term refinance plans that change the length of the loan and the interest percentage on the mortrgage. But these aren’t the only refinancing products on the shelf. Here are some of the better options that homeowners can take today to save money going into the New Year and beyond:
Homeowners can find attractive refinancing options based on a fixed or adjustable rate on mortgages that meet Fanny Mae and Freddie Mac requirements. A fixed-rate refinancing mortgage provides stability in that it locks in the interest rate over the term (length) of the loan. Homeowners can anticipate the same monthly statement until the loan is repaid. The loans are typically offered in 15-year and 30-year terms. A 15-year fixed rate mortgage may offer lower interest rates but is accompanied by higher payments than those applied to 30-year mortgages. Since locking in the best rate is critical to the value of these mortgages, consumers should compare competitive loan offers.
An adjustable-rate refinancing mortgage (ARM) has two critical time periods to consider: the initial rate period and the adjustment period. Also called a “hybrid mortgage”, the ARM locks in an interest rate over the initial period and then resets to a higher rate thereafter. Because the rates will rise, an ARM is better suited to borrowers who only intend to stay in their home for a relatively brief period of time before selling it ahead of the adjustment.
A cash-out refinance can be a strategic option for homeowners who need money and have substantial home equity. The borrower may get a better interest rate than on their original mortgage and at the same time receive a lump sum of cash based on the loan-to-value ratio (LTV). With a cash-out refinance, the original mortgage is paid off and the clock starts anew on the term and rate of the refinancing.
Homeowners can pay money toward refinancing. The strategy is to reduce payments when they cannot meet required LTV for another form of refinancing.
HARP Refinance Program
The Home Affordable Refinance Program (HARP) was created in 2009 for borrowers with homes underwater following the recession. Qualified borrowers can refinance up to 125 percent of their home’s value. HARPs can reduce the term, interest rate, and lower the monthly payments. The existing mortgage must be owned by Fannie Mae or Freddie Mac. HARP is currently slated to end in September 2017.
Also designed for borrowers who owe more than the value of their home, the Streamline is for those who have FHA-insured mortgages. No appraisals are required, but the borrower must be up to date on all required payments on the existing mortgage. There is no cash-out option with a Streamline loan.
VA Interest Rate Reduction Refinance Loan
The VA Interest Rate Reduction Refinance Loan (IRRRL) refinances an existing VA mortgage with a lower interest rate and comes with options for either fixed-rate or adjustable-rate loans. The IRRRL applies only to homes bought with a VA loan and uses the qualified veteran’s original entitlement.
With all these options available, homeowners should consider their reasons for seeking refinancing. Evaluate the timeframe for staying in the home, your credit rating and equity.
LendingTree’s free Refinance Calculator crunches the numbers on existing refinancing terms/rates and compares them against the refinancing provisions. Consumers can review estimated monthly payments and determine the break-even point where the new mortgage yields a return after initial costs.