Is it Time to Refinance?

Vantage West Makes Refinancing Clear and Simple

What is refinancing?

In very simple terms, refinancing is the process of paying off an existing loan with the proceeds from a new loan. The new loan should be able to offer a benefit for the borrower such as: a better interest rate (lower payment), a mortgage term reduction, a change on the type of loan, getting cash out from the equity of the property, etc.

As market conditions cause interest rates to change, refinancing can provide homeowners with flexible options and the opportunity to potentially take advantage of a lower rate or different term. While these are two common reasons to refinance, some homeowners opt for a refinance with cash out, to reinvest in home improvements or other projects. Both rate and term refinancing are generally done to save money by resulting in a lower monthly payment or shorter term. Cash-out refinancing involves taking out a new mortgage for more than you owe and using the difference to invest in home improvements, pay off existing debt, or fulfill other financial obligations.

Benefits of refinancing

Homeowners most often take advantage of refinancing to lower their interest rate. Since interest makes up a good portion of the average mortgage, this can result in a lower monthly loan payment. Refinancing can allows you to adjust your home loan terms or the amount of the time you have to pay off your loan. You’ll pay less interest on a 15-year loan than a 30-year loan, but the payment will be a bit higher, because of the shorter term. If you are in a position to make the higher payments, you will benefit from a lower overall loan balance. With refinancing, you can also switch to a fixed-rate loan from a more unpredictable adjustable-rate loan, which rises and falls depending upon the market. There are many benefits, but each situation is unique.

Things to take into consideration before refinancing

While refinancing is a great option for many homeowners, it might not make sense for others.  There are many important factors to take into consideration when deciding whether or not to refinance. Some things to consider include the costs associated with a refinance, stipulations of various types of mortgages, and whether the timing and reason for a refinance make sense with your overall plan.

Additional factors to consider include the costs of a home appraisal, title insurance, taxes, transfer and attorney’s fees. In the event the remaining mortgage balance is more than 80% of your loan balance, you will also need to purchase Private Mortgage Insurance (PMI).

In many cases it won’t take long to recoup costs associated with a refinance, but in other cases, a different option, such as a home equity loan might make more sense.

Questions to ask

There are many questions you should ask before deciding to refinance your home. If you are unsure of how to answer the following questions, a Vantage West Home Loan Consultant can help guide you.

Does your home loan have a prepayment penalty?

 Some lenders require that you make a payment when you pay your balance off early. These prepayment penalties can drive up your overall costs, since you’ll need to pay off your previous home loan before you refinance. None of the mortgage programs that Vantage West offers have pre-payment penalties.

How long do you plan to stay in your home?

Staying put in your new home for a longer period of time ensures that you’ll recoup the closing costs and other fees associated with refinancing. If you plan to move before you can recoup fees, then refinancing, then it might not be your best option.

Have your levels of debt changed?

Your financial situation may have changed since you signed the original loan, which could impact your decision to refinance. Typically, those with debt to income ratios higher than 45% won’t qualify for refinancing, although there are exceptions. If you’ve taken on a long of recent debt or experienced an income drop, you might want to approach refinancing with caution.

Refinancing with Vantage West

Vantage West offers flexible refinancing options, along with the community-oriented member services you’ve come to expect. Whether you want to switch from an adjustable-rate (ARM) to a fixed-rate home loan or are looking to reduce your loan term, we’re ready to guide you along the way. Visit Vantagewest.org for more details or contact a Vantage West Home Loan Consultant, who will be happy to guide you through the whole process.

Subject to approval. Certain restrictions may apply. NMLS# 485751