Refinancing an Arizona mortgage loan is simply the process of acquiring a new loan to pay off an existing lender.
Four Reasons to Refinance
A mortgage loan is generally the largest debt that most homeowners will need to manage. It’s a good idea to review your real estate finance portfolio a check-up annually.
There are many reasons that a homeowner may choose to refinance their mortgage loan, but the top four reasons are;
- Drop in mortgage rates
- Lowering current mortgage payments
- Debt consolidation
- Changing mortgage programs.
Calculating the Net Benefit of a Refinance
You certainly don’t want to refinance unless you receive a benefit! Calculating that net benefit can be a bit confusing, however.
You can make this calculation easier by focusing on the lowering of the interest rate. Again, there are many reasons to refinance but lowering the rate is the most popular.
Should I get a Home Equity Line of Credit or Cash-Out Refinance to make home improvements?
Many homeowners are interested in making improvements to their property without tapping into their savings or investment accounts. Two options available are a Home Equity Line of Credit or a Cash-Out Refinance.
There is also a Home Equity Loan which, unlike a Line of Credit, is a lump-sum given to the borrower paid back through fixed payments.
Both a Line of Credit and a Home Equity Loan are what’s called a “subordinate position” to the first loan and usually referred to as a “Second Mortgage”. Because of the risk taken by a lender in this case, the rates are usually a little higher.
Frequently Asked Questions
Q: Is there such a thing as a “No Cost” mortgage?
A: We get this question a lot. Technically speaking, there are always costs, it just depends on who is paying them. Either you (the borrower) will pay the closing costs OR the lender will pay them. Even though you may hear or read deceiving advertising that gives you the impression that you can get a loan with no closing costs, they are not being forthcoming. If you don’t want to pay any closing costs, the lender will structure (increase the interest rate) so that the lender will pay them.
Q: How long do I have to wait to refinance after a purchase transaction?
A: A good rule of thumb is after your 6th scheduled payment, but there are exceptions. It is wise to discuss this with your lender at the time of your initial application to be sure there are no short-term penalties involved with a quick refinance.
Another thing to consider is the cost of a refinance. If you watch the market closely and think that a quick refinance may be a possibility, it may be more beneficial to purchase points rather than having a refinance.
Q: I’ve heard that you should only refinance if there is at least a 1% drop in my mortgage rate. Is this true?
A: The answer is…every mortgage is different. Sometimes 1/2% could be beneficial, sometimes 1% may not be!
Q: Couldn’t I simply compare my current payment to the proposed payment and figure out my benefit?
A: This is an easy way to look at your “cash flow” savings, but depending on your amortization schedule, the overall cost savings can be very different. Over the life of the mortgage loan you may or may not save money, but it might benefit your current cash flow.
Q: Is it easier to refinance with my current mortgage company?
A: Sometimes your current Arizona mortgage lender can help to reduce documentation that’s required, but they make up for that with other costs. Make sure that you check to assure the best deal.
Q: Will I automatically qualify for a refinance?
A: No. You will have to qualify for a refinance, however certain programs will allow for a reduced quantity of documentation such as the FHA and FHA Streamline.