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Refinance FAQ’s

Refinancing your existing mortgage can save you thousands of dollars each year. Contact the Mortgage Professionals at American Home Free Mortgage to see if the time is right for you to refinance your mortgage!

Why should you refinance your mortgage?
There are many reasons why you might want to consider refinancing your current mortgage. The most common reason for refinancing is to lower their monthly payments by taking advantage of a lower interest rate. There are, however, many other reasons why you should consider a refinance:

  1. Consolidate your debt.
  2. Tap the equity in your home to obtain cash.
  3. Protect yourself by converting from an ARM to a fixed rate mortgage.

No matter what your reasons are for pursuing a refinance, you need to make sure that it makes sense for you based on your unique circumstances. Below are some factors that you should consider when pursuing a refinance:

  1. If your current interest rate is significantly higher than today’s lowest rates, you may be able to roll your loan costs into the loan and still get a lower rate than you have today, thereby reducing your interest payments and saving money immediately.
  2. If you are planning to stay in your home for at least three to five years, it may make sense to pay “points” (a point equals 1% of the loan amount) and closing costs to get the lowest available rate.
  3. You can avoid laying out cash and still get a low rate by adding the points and closing costs to your new mortgage. Does that mean shouldering a lot of extra debt? Not necessarily. If you’ve had your current mortgage for at least three years, you’ve probably reduced your balance by several thousand dollars. You may be able to tack your closing costs onto your new loan and still end up with a mortgage that’s smaller than your original one — plus, of course, a lower rate and lower monthly payment.

If you need some help determining whether a Refinance is right for you, contact one of our personal mortgage bankers at 972-347-9921 to find out if we put money back into your pocket!

What will it cost me to refinance my loan?
When you refinance your mortgage, you usually pay off your original mortgage and sign a new loan. With a new loan, you again pay most of the same costs you paid to get your original mortgage. These can include settlement costs, discount points, and other fees.

The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required obtaining a loan. To obtain the lowest rate offered, most mortgage companies will charge several points, and the total cost can run between three and six percent of the total amount you borrow. Some companies may offer zero points at a higher interest rate, which may significantly reduce your initial costs, although your payments may be somewhat higher.

Check the market closely to determine the available rates and costs associated with refinancing. These costs can include items such as an appraisal and other various fees and points. Then determine what your new payment would be if you refinanced. You can estimate how long it will take to recover the costs of refinancing by dividing your closing costs by the difference between your new and old payments (your monthly savings).

The ultimate amount you may save depends on many factors, including your total refinancing costs, whether you sell your home in the near future, and the effects of refinancing on your taxes. The old rule of thumb used to be that you shouldn’t refinance unless the new interest rate is at least two percentage points lower. However, many companies are now offering zero point loans and low cost refinancing. Therefore, even if your rate change is less than one percentage point, you may be able to save some money by refinancing.

Is it a good idea to do a Cash-Out Refinance?
Another way to make a refinance work for you is to refinance for more than the balance remaining on your old mortgage — in effect, tapping your home equity, or “cashing out,” in mortgage speak. Thanks to favorable rates, you may be able to do so without boosting your monthly outlay. For example, at 8.5%, the payment on a $200,000, 30-year fixed-rate mortgage is $1,538. But at 7.5%, that same payment lets you borrow nearly $20,000 more.The best use for the extra cash is to pay off any higher-rate loans you may have. Let’s say that you are carrying a $15,000 car loan at 10% and making minimum payments on a $10,000 credit-card balance at 17%. Your monthly payments on those debts would total $680. Then assume you refinanced your mortgage, taking out an additional $25,000 to pay off your car and credit-card loans. At 7.5%, your additional monthly mortgage payment would total only $175, so you would come out $505 ahead ($680-$175=$505).

Should I refinance from an ARM to a fixed rate?
Generally, it’s a good idea to get the lowest fixed rate possible, but you also have to consider your situation. If you’re in the first year of an adjustable rate mortgage (ARM) and you plan on moving in three years, it probably doesn’t make sense for you to refinance. However, if the rate on your ARM is about to adjust and you think the rate will go up, then it may make sense to get a long-term fixed-rate mortgage, especially if you don’t plan on moving in the next seven years or so.

How long does it take to refinance?
With American Home Free Mortgage, you can close on your refinance loan in as little as 15 days. However, refinancing could take between two and four weeks, depending on a few factors:

  1. Whether or not you have a second lien loan that requires subordination.
  2. Whether or not your property can be appraised in one week or less depending on market conditions and your property location.
  3. How quickly you respond to our requests also contributes to overall closing time frame.
Should I pay points when I refinance my loan?
In refinancing, a mortgage company usually offers a range of interest rates at different amounts of points. A point equals one percent of the loan amount. For example, three points on a $100,000 mortgage loan would add $3,000 to the refinancing charges.Analyzing various interest rates and associated points may save you money. As a rule of thumb, each point adds about one eighth to one quarter of one percent to the interest rate the mortgage company is offering. Generally, the lower the interest rate on the loan, the more points the lending institution will charge. Some companies offer refinancing with no points, but generally charge higher interest rates.

To decide what combination of rate and points is best for you, balance the amount you can pay up front with the amount you can pay monthly. The less time that you keep the loan, the more expensive points become. If you plan to stay in your house for a long time, then it may be worthwhile to pay additional points to obtain a lower interest rate.

Some companies may offer to finance the points so that you do not have to pay them up front. This means that the points will be added to your loan balance, and you will pay a finance charge on them. Although this may enable you to get the financing, it also will increase the amount of your monthly payments.

What is a FHA Streamline Refinance loan?
FHA has permitted streamline refinances on insured mortgages since the early 1980′s. The streamline refers only to the amount of documentation and underwriting that needs to be performed by the mortgage company, and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:

  1. The mortgage to be refinanced must already be FHA insured.
  2. The mortgage to be refinanced should be current (not delinquent).
  3. The refinance is to result in a lowering of the borrower’s monthly principal and interest payments.
  4. No cash may be taken out on mortgages refinanced using the streamline refinance process.
  5. Companies may offer streamline refinances in several ways. Some companies offer “no cost” refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the company pays any closing costs that are incurred on the transaction.
  6. Companies may offer streamline refinances and include the closing costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal.
  7. Streamline refinances can also be done without appraisals, but the new loan amount cannot exceed what is currently owed, i.e., closing costs may not be added to the new mortgage with those costs either paid in cash or through the premium rate as described above.