Reasons And Benefits To Consider To Refinance Home Loans
Homeowners Have Many Reasons To Consider To Refinance Home Loans
There are many reasons why many homeowners consider to refinance your current mortgage loan:
- The main focus in a refinance home loans is to save money in interest expense by paying off a higher mortgage rate mortgage loan into a lower mortgage rate refinance home loans, thus reducing the monthly minimum payments.
- Other reasons why many folks go through refinance home loans is to pay off their FHA insured mortgage loan by refinancing their FHA loan with a conventional loan where they no longer have to pay the hefty FHA annual mortgage insurance premium.
- Yet others go through a refinance home loans so they can take cash-out to pay off other financial obligations or use the proceeds from their refinance for other reasons.
- You can use your proceeds from your refinance home loans for anything you want such as remodel your home, vacations, pay off high interest credit cards, college, elderly health care, buy high ticket items.
When Can I Refinance My Current Mortgage?
All residential mortgage loans do not have pre-payment penalties and technically, you can refinance your current home loan at anytime. There are some mortgage lenders where they have minimum seasoning requirements before you are able to refinance with them. For example, there are some mortgage lenders that will require a 6 month seasoning period before you are able to refinance your current mortgage loan.
Refinance Home Loan To Lower Current Mortgage Rate
Most homeowners refinance their current mortgage loan to get better mortgage rates where it reduces their monthly principal and interest payments. However, the refinance mortgage needs to have a net tangible benefit to the mortgage loan borrower where their housing payment has at least a 5% reduction in their monthly payment. If you are planning on refinancing your current mortgage loan, the rate reduction should be at least reduced by at least 1.0% in order for it to make sense. If your rate reduction is 0.50% or lower, it is not to your best interest in refinancing your current mortgage loan due to closing costs associated with refinance your current mortgage loan.
Refinancing To Eliminate FHA Mortgage Insurance Premium
FHA annual mortgage insurance premium is at 1.35% . Many homeowners want to eliminate the costly FHA monthly mortgage insurance premium by refinancing into a conventional mortgage loan program. Private mortgage insurance is required on all conventional mortgage loan with loan to values higher than 80%. However, conventional private mortgage insurance is much cheaper than FHA mortgage insurance premium. Many conventional mortgage lenders also offer no mortgage insurance required programs known as Lender Paid Mortgage Insurance or LPMI, where there is no private mortgage insurance premium required in lieu of a slightly higher mortgage rate. Any conventional mortgage loan with loan to values lower than 80% LTV, no mortgage insurance is required.
2017 UPDATE ON FHA MORTGAGE INSURANCE PREMIUM: THIS BLOG WAS UPDATED ON MARCH 7, 2017 AND THE FHA ANNUAL MORTGAGE INSURANCE PREMIUM WAS REDUCED TO 0.85%
Reasons To Refinance
Many home buyers purchased their homes when they had lower credit scores and/or poor credit. Lower credit scores means higher mortgage rates. Borrowers who purchase their homes with higher mortgage interest rates can maximize their credit scores and refinance their home loans into a lower interest rate mortgage. Also, home buyers who purchased a fixer upper with a FHA 203k Loan, they can refinance their home loan because 203k Loans have much higher interest rates than traditional FHA Loans. NON-QM Loans have become very popular where it has no waiting period requirements. Home buyers who purchased their homes with NON-QM Mortgages can refinance with a traditional mortgage loan program like FHA or Conventional after their waiting period after bankruptcy and foreclosure has been met.
2017 Update On Cash Out Refinance Home Loans
Cash Out refinance home loans are very popular. However, many mortgage lenders will limit loan to values on cash out refinance home loans depending on the mortgage loan programs.
Here is the updated 2017 maximum cash out loan to value on refinance home loans:
- FHA will allow up to 85% loan to value on a cash out refinance
- Fannie Mae and Freddie Mac will let you do a cash out refinance up to 80% LTV
- VA permits up to 100% cash out on VA Loans
- Jumbo Mortgages will normally have a maximum of 75% loan to value on cash out refinance home loans
Mortgage rates on a cash out refinance is normally slightly higher than a rate and term refinance mortgage.