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Why Use a Mortgage Refinance Calculator?
Why Use a Mortgage Refinance Calculator?
Are you thinking about refinancing your home? Our easy-to-use mortgage refinance calculator can help you decide whether refinancing could be a good option.
Simply enter your current loan details into our mortgage refinancing calculator and the projected details of your new loan. Our refi calculator will estimate how much money you could save each month and what your new monthly payment could look like.
Refinance Calculator: How Does Refinancing Work?
Refinancing simply replaces your current home loan with a new mortgage that has different terms. Refinancing usually requires that you have a certain amount of equity in your home. Generally, you need at least 20% equity but this varies depending on the loan program.
Should I Refinance My Mortgage?
A good question to ask before even getting started with refinancing is how long you plan to stay in your current home. It may not make good sense to spend thousands of dollars in closing costs only to obtain a lower rate.
On the other hand, if you're looking to stay in your home for the lifetime of the loan, extending the term of your loan could mean paying less each month, although you will be paying more in total interest in the long run.
The benefits of refinancing your home will take time to accrue so you need to make sure you are staying there long enough to break-even on the cost of refinancing. Determining how long it will take to break even will come in handy, especially if you don't plan on staying in your house for that long. For example, if the break-even point on your refinance is 5 years, and you only plan to live there for another 4 years, then it's not beneficial to refinance because you will not be recouping your costs prior to selling the home.
When you're deciding whether you should refinance, you have to consider your financial goals. There are several potential benefits to refinancing, which include:
- Lower your monthly payment
- Lower your interest rate
- Shorten your loan term
- Get cash back
- Eliminate private mortgage insurance
Our refinance calculator has a preset interest rate. To estimate your new loan payment, enter today's current mortgage rate into our refinancing calculator. If you decide to refinance your loan, your mortgage interest rate will be based on your credit profile. If your credit score has improved since your first mortgage, you may qualify for a lower interest rate now.
When Should I Refinance My Home?
So, you've bought a home. Maybe you've even refinanced it one or more times. Now you're wondering, “can I refinance again?” Well, technically, there is no limit to the actual amount of times you can refinance your home. So, the bigger question remains, “is it in your best interest to refinance?” Let's take a look at some of the factors that may guide your decision.
The Rates Are Great, You Just Can't Wait
First and foremost, today's historically low interest rates may be just too good to pass up. Getting a low rate can translate into some serious savings of thousands of dollars over the life of the loan.
Just a 1% rise or drop in the interest rate could significantly affect your monthly mortgage payment. Even if you've recently refinanced your home, it may be in your best interest to refinance at a lower interest rate, especially if you wish to “trade-in” your adjustable rate mortgage for the security of a lower locked-in, fixed-rate loan.
You Could Really Use the Cash
Whether it's a lower monthly payment from refinancing or a cash-out loan, your financial needs can be easily met by refinancing your home mortgage. This can allow you to consolidate some debts, help pay off a second mortgage, reinvest in some needed home improvements or even make a nice nest egg for retirement or your child's college fund.
Long-Term vs. Short-Term Financial Planning
Is saving money over the long-term with a higher monthly payment in your plans? Or do you need a lower monthly payment now? Also, how soon do you want to be debt-free?
Depending on your income, your budget and your comfort level, the choice between a 15-year and 30-year mortgage is a stark contrast and a personal one that should match your financial needs and goals. With a 30-year mortgage, you will generally pay more interest on a higher rate over the life of the loan in exchange for lower monthly payments.
In contrast, a 15-year mortgage usually yields higher monthly payments in the short-term, but a much faster payoff date with possible savings advantages on a lower interest rate.
Is It Time to Say Goodbye to Your PMI?
Homebuyers who made a down payment of less than 20% of the home's price are generally required to purchase mortgage insurance. The added cost of Private Mortgage Insurance (better known as “PMI”) can range anywhere from .3% to 1.5%1 of the original loan amount to be paid annually. (When you've reached 22% equity, the lender is required to remove it.)
The good news? By refinancing, you can eliminate your PMI if your home value has increased enough.
Other Mortgage Refinance Considerations
Obviously, every loan is based on its own unique situation with its own special conditions. For instance, if you want to refinance your home immediately after refinancing with a cash-out loan, most lenders will usually make you wait a minimum of 6 months. Your eligibility as well as your credit score will also affect your ability to get a loan.
Other questions are even more targeted to the individual buyer: is there enough equity in your home to warrant a refinance? Do you meet all the loan requirements? Is your loan close to be being paid off, so that the expense of closing costs will outweigh the potential savings of refinancing? Do you have any prepayment penalties on your existing loan should you pay it off early? Can you wait until the prepayment penalty expires before refinancing? Do you need to pay points or fees on your new loan? Do you need impound account monies? All good questions—only your unique case can determine the answers.
How Could Refinancing Lower My Payment?
- Lower interest rate – If you lock in a lower interest rate, you could lower your monthly payment because you're paying less to finance your home.
- Eliminate private mortgage insurance (PMI) – If you put less than 20% down on your home, you're probably paying PMI. If you've built at least 20% equity in your home, you could stop paying your PMI, which would lower your monthly payment.
- Extend your loan term – If you refinance to a longer loan term, it would decrease your monthly payment.
One option you may benefit from is switching from an adjustable-rate mortgage (or ARM) to a fixed-rate mortgage. With an adjustable rate, you will receive an initial period of a set interest rate which will at some point reset to a rate that can change, for the rest of the life of the loan.
Most homeowners choose an ARM if they believe they'll be in that home only a few years, since they can save money with the lower initial interest rate an ARM offers.
If you plan to stay in your home for a while, however, converting to a fixed-rate mortgage will help you be better able to budget over the long term since your interest rate will remain unchanged.
Can I Get Cash Out of My Home?
If you have enough equity in your home, you could refinance your current mortgage and get cash back. For example, if your home is worth $250,000 and you owe $150,000. You have $100,000 in equity in your home. You could refinance your home. Your new loan would pay off your current mortgage and you would get the cash difference.
Some of the popular reasons for getting cash back include:
- Pay off credit card debt
- Cover college tuition expenses
- Renovate your home
In order to take out cash, your name needs to be on the title of the property for at least six months, the so-called cash-out waiting period, if yours is a conventional, jumbo, or VA loan. For FHA loans, you will need to wait for one year.
For FHA loans, you will also need to establish that you have lived in your former investment property for at least one year if you recently moved back. If you have inherited the property, there is no waiting period unless you had an FHA loan and chose to rent the property out at any time since inheriting it.
What If I Have Bad Credit?
Taking steps to repair or improve your credit before seeking a refinance is the best way to better your odds. Obtaining a copy of your credit report from one of the three major credit agencies (Equifax, Experian, TransUnion) is a great start.
For a fee you can even get a comprehensive report that shows results from all three. From there, you have a number of options. The following is a checklist of things you can do to polish up your credit and make your case more appealing to a potential lender:
Review your credit report(s) carefully for anything suspicious or questionable. According to the Fair Credit Reporting Act (FCRA) both the credit reporting company and the information provider (the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information. Notify them of any inconsistencies in your report.
Pay Down Credit Cards with High Balances
Your credit score is partially based on how close you are to your maximum credit limit on any given credit card. Lowering the amount you owe on nearly-maxed-out cards can improve your standing. If you have multiple cards, especially one with little or no balance, consider a balance transfer. Think of this as stacks of blocks. A stack 20 blocks high will appear unstable, but splitting that into 2 stacks of 10 blocks will be much more stable.
Get a Co-Signer
Someone with a solid record can essentially substitute their credit rating in place of yours in order to get you a desirable rate on your refinance. This option should be very cautiously considered though as any activity will affect the co-signer and a mishap could damage their credit as well as their relationship with you.
Seek Credit Counseling
It may seem like a contradictory option, but paying a financial professional to help streamline your budget could save you quite a bit in the long run.
Do the Math
Shop around before making a decision. Likely, different lenders will offer you different terms & rates. Seek a quote from several before settling on one. It may sound obvious, but be sure to include your current lender. There's a good chance they will offer you a competitive rate to keep your business which won't only save you money, but also the time & energy of filing paperwork with someone new.
Also, plan ahead. All of these options present great opportunities to save you money and help you refinance your home, but each is dependent on a number of factors and may have a different effect on your unique situation. Lay out the details, analyze the numbers and weigh the benefits to make sure you achieve the best possible refinance for your home.
Refinancing a VA Loan
Among the benefits members of our armed forces receive for their service is access to the VA loan program, which helps finance homeownership. These loans tend to be more attractive—in terms of rates, credit requirements, down payments, and refinancing—than those available to nonmilitary home buyers.
Many who used this program to buy their homes may not realize that they typically can continue accessing it throughout their lives as they buy and sell homes. The VA also offers its borrowers options for managing mortgages through a streamlined refinancing process.
The VA's Interest Rate Reduction Refinancing Loan (IRRRL), which is also referred to as a "Streamline" or "VA to VA" loan, enables borrowers with a VA loan to refinance into a new, lower rate VA loan.
The interest rate on the new VA loan needs to be lower than the one on the current mortgage in order to qualify for this option.
Here are some other benefits to refinancing your current VA loan using an IRRRL:
- The loan typically bypasses the credit underwriting process.
- A new appraisal is rarely required.
- No new money is necessary since associated costs can be included in loan.
- Additional funds may be borrowed (up to $6,000) for energy-efficiency improvements to the property.
- A new certificate of eligibility is not required, the one you used previously may be reused.
- The occupancy requirement is more flexible.
- Some lenders allow you to reduce your term from 30 years to 15 years.
With interest rates still near historical lows, an IRRRL could help lower your monthly payment further, freeing up funds for other uses for you and your family. The streamlined process for refinancing a VA loan makes it an option you've certainly earned the right to explore.
Can I Refinance a Jumbo Loan?
There are many reasons to refinance a home loan. You may want to lower your interest rate or monthly payments; perhaps you want to cash out refinance to pay for remodeling or a home improvement project; or maybe you just want to change the terms of your loan.
Whatever the reason, a mortgage professional can help you decide which loan refinance package is right for you. When rates are low, it's a great time to consider refinancing your Jumbo Mortgage.
Once the principal balance on your mortgage is below the OFHEO loan limit, a home loan specialist can help you make the transition to a traditional conforming loan. Making this transition will lower your interest rates and help you pay off your loan faster.
Additional Jumbo Loan Refinance options include:
- No Mortgage Insurance Required. Most mortgage lenders require borrowers to pay for private mortgage insurance (PMI) in order to finance loans with loan to value ratios above 80%.
- Interest Only Refinancing. If you need to lower your monthly payment temporarily to avoid foreclosure or divert monthly payments toward other uses, you can use Interest Only Refinancing to reduce your monthly payment to just the interest rate cost.
- Cash-Out Refinancing. You can use funds from a cash out refinance to make large purchases or pay off higher-interest debt.
Contact your mortgage lender to ensure you'll have a smooth and straightforward home financing experience.
Things to Consider Before You Refinance Your Mortgage
Credit score: just like you did when you first purchased your home, you need to think about your credit score before refinancing.
Outstanding debt: a mortgage lender will be examining your ratio of debt to your income (or DTI). The lower your ratio of debt to income, the higher your odds of qualifying. Taking equity out of your home to consolidate debt is also an option.
Closing costs: your closing costs with a mortgage refinance will probably be somewhat less than when you purchased your home, but should still be taken into consideration. While every refinance is unique, be aware that getting a lower interest rate can mean having to pay higher closing costs. Discuss your options with a New American Funding Loan Consultant.
Mortgage prepayment penalties: make sure you take a look at the terms of any refinance to see if your lender will charge you a penalty for paying your mortgage early.
To deter a borrower from selling or refinancing their loan as soon as rates drop, lenders will throw a prepayment penalty into the mortgage loan if the borrower pays back the loan earlier than the original terms called for. It's important to know that there are two types of prepayment penalties: soft prepayment penalties and hard prepayment penalties.
A soft prepayment penalty is given only in the event that a house is refinanced before the time period is up. The home could be sold at any time after the close of the first loan without incurring the extra fees.
On the other hand, a hard prepayment penalty, which is more common, is given regardless of whether the note is paid off as a result of a sale or refinance before the set time has lapsed.
In most cases, prepayment penalties won't hurt you because it's unlikely that you'll pay off your $200,000 home loan in three to five years. However, refinancing a mortgage from a higher interest rate to a lower interest rate technically counts as paying off your loan. To refinance from one loan to another, you are paying off the original mortgage. If you do this within the penalty period, you'll have to pay the prepayment charges.
Give us a call today to find out if refinancing your home could be the right financial decision for your current situation. One of our experienced Loan Consultants can answer your questions, discuss what to know before refinancing, and help you get the process started right away if you want to refinance your mortgage.