UPDATE: The current expiration date for HARP 2.0 is set for December 31, 2018. There is just a little more than one year remaining for homeowners to qualifyMark your calenders homeowners. December 31st, 2018 when one of the largest Goverment Mortgage Reduction Programs is set to expire.
The Home Refinancing Plans Banks Don’t Want You to Know About
Still unknown to many homeowners is a Government Program called the Home Affordable Refinance Plan (HARP) whose conception was intended to benefit millions of Americans and reduce their payments by as much as $3,000 per year! You could bet the banks aren’t too excited about the prospect losing all that bottom-line profit and might secretly hope homeowners don’t find out before time expires this upcoming year.
So while the banks happily wait for this program to end, the Government is making a final push and urging homeowners to take advantage. This program is set to expire in 2018, but the good news is that once you’re in, you’re in. If lowering your payments, paying off your mortgage faster, and even taking some cash out would help you, it’s vital you act now. See if you qualify?
How Do I know if I SHOULD Refinance?
So, you’ve gotten a loan and bought home of your dreams, that’s not where your knowledge of mortgages should end. It’s in your best interest to truly understand the ins and outs of how to refinance a mortgage—info which can benefit you for a variety of reasons.
Still, you need to be careful—making a wrong decision when it comes to your refinance, could easily get land you in over your head. To make sure you don’t find yourself in this bad spot we’re going to detail the right (and wrong) ways to tap into your home equity. READY TO GET YOUR FREE QUOTE?
What is home equity?
For starters, home equity is the current market value of your home, minus the amount you owe on your mortgage. Throughout the duration of your loan, as you’re paying down your mortgage it should increase your home equity. Market factors can affect the value of your home, which can rise (or fall) and increase (or decrease) your home equity.
What is a Refinance Mortgage?
A mortgage refinance is essentially a brand new loan for your home. As such, you’ll be subject to complete documentation and verification of your: income, assets, debt-to-income ratio, credit score, and job history. Additionally, you’ll need to have your house appraised and the value needs to be enough to support the new loan. Just remember you’ll need to pay closing costs, which run anywhere from 2% to 7% of the home’s sales price, or opt for a no-cost refinance, where your lender covers the closing cost’s but you get a slightly higher interest rate on your new loan.
Your choice in lender is entirely up to you and there are a lot of choices. Some people go through their original lender, but most find that they can get better deals is they shop around and compare your loan options.
The Big 4 Reasons to Refinance
There are several things that could prompt you to refinance:
1. Lower your current interest rate. Mortgage rates fluctuate constantly. The recent trends have seen lower rates for most people. Now is a good time to refinance because you can lower their monthly mortgage payments and ultimately, pay less in interest over the life of the loan. Here it the tricky part, you need to look at your “potential closing costs” and calculate your “break-even point” to determine whether it makes sense to refinance or better to stay with your current loan. Remember when you refinance you are also resetting the clock in terms of the life of your mortgage. You can use our simple refinance calculator in the sidebar or the amortization refinance calculator >>> to crunch the numbers of your own mortgage and see how much you’d save. A word of advice, if your interest rate is more than 1% above current rates, refinancing is a GOOD move. READY TO GET YOUR FREE QUOTE?
2. To change your mortgage type or term. The most common instance of this is changing an adjustable-rate mortgage into a fixed-rate loan. Still, others want to reduce their loan term in order to pay it off faster saving a lot of money in the process. Typically terms range from a 30-year loan to a 10-, 15-, or 20-year loans.
3. To stop paying mortgage insurance. If you didn’t have enough cash to make a 20% down payment when you purchased your home, you are undoubtedly familiar with mortgage insurance. Mortgage insurance is—a monthly premium that typically costs between 0.3% and 1.15% of your home loan to mitigate risk for the lender who funded your loan. Refinancing to a loan without mortgage insurance can save you hundreds of dollars each month, however, you’ll still have to have at least 20% equity in your home to qualify.
4. To cash out your home’s equity. The big advantage of home ownership is that a house is normally an appreciating asset. As such you can tap into your home’s equity and borrow against it. This is typically done to make home improvements, pay for college, consolidate debt, or make a down payment on a second home. If accessing your home’s equity is the reason for your refinance you can choose between a home equity loan and a home equity line of credit (or HELOC).
What’s the difference between a HELOC and a home equity loan?
Although these two loan programs seem similar on the surface, they are significantly different. A home equity loan is very similar to a regular mortgage. You decide how much you want to borrow and then make monthly payments against that amount. The big advantage is you’re borrowing a fixed amount typically accompanied by a fixed interest rate. There is peace of mind knowing that the payments will remain the same. READY TO GET YOUR FREE QUOTE?
A home equity line of credit (HELOC) functions much like a credit card. It allows you to borrow up to a certain amount (typically 75% to 85% of the home’s appraised value, minus what you still owe on your home) on an as-needed basis over the term of the loan (usually 5 to 20 years). As a matter of fact your lender will typically issue you a plastic card to access the money easily. A HELOC works well if you want to borrow money but don’t know exactly how much you’ll need (a common conundrum when making home improvements).
So, what is the biggest drawback to HELOCs? Unlike with home equity loans, interest rates on HELOCs are variable, and fluctuate depending on market conditions. Most lenders offer a low “introductory” rates which only lasts for a few months then the interest rates typically balloon. After that the rates continue to readjust and could potentially create problems if you don’t prepare for higher payments. IF you are going to go the HELOC route just be sure to weigh these pros and cons before you start chipping away at the equity you’ve gained. READY TO GET YOUR FREE QUOTE?