Refinance Market Roaring Ahead
Mortgage rates are below 3.50%, and millions of U.S. homeowners are now in the money to refinance.
The majority of refinancing homeowners are reducing monthly payments by $200 or more; and, many are using zero-closing cost mortgages to keep the benefits of refinancing their homes high.
Homeowners opting for a debt consolidation of credit cards are saving even more — especially because of how lenders treat now treat credit card debt.
If you’ve been wondering whether it’s finally a good time to refinance, the answer is a likely “yes”. Mortgage rates are low, and lenders are eager to approve good loans.
8.7 Million Homeowners Have Reason To Refinance
Today’s mortgage rates are the lowest in three years and, for many homeowners, of all-time.
Refinance opportunities have re-opened for homeowners with existing conventional loans; and for homeowners with FHA loans and VA loans, too.
According to Black Knight Financial Services’ monthly Mortgage Monitor, there are currently 8.7 million potential refinance candidates nationwide.
Furthermore, there are an additional 200,000-plus homeowners eligible for the Home Affordable Refinance Program (HARP), which expires at the end of 2016; and hundreds of thousands of homeowners eligible for the FHA Streamline Refinance and VA Streamline Refinance programs.
In aggregate, U.S. homeowners could save more than $2.0 billion every month.
If only more homeowners would apply.
Despite a drop in mortgage rates (and a loosening of mortgage lending standards), refinance volume is slow to advance. Too many homeowners feel it would be difficult to get a mortgage; or, don’t feel that a refinance is worth the time required.
Did you know: A $250,000 mortgage from last year, refinanced from 4.50% to 3.50% today, would save $75,000 in mortgage interest costs over the life of the loan?
And, if you can do a zero-closing cost mortgage refinance, even better.
To check your home refinance eligibility, speak with any mortgage lender nationwide — either in person or online.
Note, though, that, homeowners with an existing VA mortgage will want to specifically ask about the VA Streamline Refinance program, which is a reduced-paperwork refinance that waives the need for an appraisal.
And, homeowners with existing FHA loans will want to ask about the FHA Streamline Refinance. It, too, is a simplified, appraisal-less refinance plan.
However, FHA-backed homeowners with at least 5% home equity should ask how to cancel FHA MIP. With home values rising nationwide, more and more FHA homeowners are leaving their FHA MIP behind.
The Black Knight Financial Service Mortgage Monitor reports 8.7 million U.S. households potentially eligible for a home loan refinance.
That data point, however, focuses on homeowners whose current mortgage rate is above the current market mortgage rate, which is near 3.50% for a conventional mortgage refinance; and lower for an FHA Streamline Refinance or VA Streamline Refinance.
There are other refinance types, though, besides the “rate-and-term” refinance; where a homeowner is just looking to lower its interest rate.
There are three types of refinance loans available in today’s mortgage market:
- The rate-and-term refinance
- The cash-out refinance
- The cash-in refinance
Rate-and-term refinances are the most common of the three refinance types.
Via a rate-and-term refinance, the homeowner lowers the mortgage rate, the loan term, or both. There is no minimum mortgage rate reduction when you do a rate-and-term refinance. You just want to make sure that your benefits outweigh your costs.
In general, the lower your closing costs or the longer you plan to hold the mortgage, the more likely that a rate-and-term refinance will make financial sense.
The second type of refinance is the cash-out refinance.
With a cash-out refinance, the homeowner’s loan balance increases by five percent or more at the time of closing.
Cash-out refinances are especially popular when home values rise. This is because the cash-out refinance allows a borrower to increase its loan balance without increasing the home’s loan-to-value (LTV).
Loans with higher LTVs are subject to worse mortgage rates and, when loan-to-value exceeds 80%, private mortgage insurance.
Unless you’re doing a cash-out refinance to eliminate credit card debt, there are no restrictions on how you use the cash that’s paid at closing.
Cash-out refinances can be used to finance home construction; to pay for college or graduate school expenses; to fund a retirement or long-term savings account; or anything else.
Lastly, there’s the cash-in refinance.
Cash-in refinances are typically used to get better loan terms which may only be available at lower LTVs. For example, a homeowner with an existing FHA mortgage may want to stop paying FHA mortgage insurance but, in order to do that, the homeowner’s LTV must be low enough to qualify for a conventional home loan instead.
Via the cash-in refinance, the homeowner can pay down its mortgage balance at closing in order to get the better loan terms.
Another example of a cash-in refinance is a homeowner bringing cash to closing in order to lower the total borrowed amount. Less interest is paid on lower loan amounts which makes the cash-in refinance an excellent way to reduce loan-term costs of borrowing.