If you want to unlock equity in your home, lower your mortgage payment, or change the terms of your loan, a refinance may be the right choice for you. Refinancing a home loan is simply replacing the existing loan with a new mortgage to pay off the old loan and begin make payments on the new mortgage. A refinance can be used to get a better interest rate, take cash out of the equity in your loan, shorten or lengthen the loan term, and more.

Options When Financing Your Loan

When you refinance, you can get a new interest rate and/or a new term. Many homeowners choose to refinance an adjustable-rate mortgage (ARM) into a fixed-rate loan before the loan resets for stable, predictable payments. You can also refinance into a shorter term to pay less interest and build equity faster or into a longer-term loan for smaller mortgage payments.

Basic options for refinancing include:

-- 15-year fixed-rate mortgage which offers stability, lower interest, and a quicker path to equity growth. The downside of refinancing into a 15-year mortgage from a 30-year loan is your mortgage payments will be higher.
-- 30-year fixed-rate mortgage which provides long-term stability and lower mortgage payments. A 30-year mortgage will have higher interest charges over the length of the loan.
-- ARM. You can refinance into or out of an adjustable-rate mortgage. ARMs usually offer the lowest interest rate in the short term but unpredictable monthly payments and interest over a long period of time.
-- VA mortgage. If you have a conventional mortgage, you can refinance into a VA loan if you are a qualified veteran, military member, or spouse. VA loans have very competitive interest rates and low closing costs.
-- Conventional loan. Many homeowners with an FHA loan choose to refinance into a conventional mortgage once they achieve 20% equity in their home to avoid the cost of mortgage insurance premiums.
-- Cash out refinance. If you have equity in your home that you want to unlock, a cash out refinance replaces your existing loan by paying it off and refinancing you into a new loan for more than you currently owe. You can pocket the difference between your old mortgage amount and new loan amount.

Cash-Out Refinance

One of the most common reasons to refinance is to access the equity in your home. While it's possible to take out a home equity loan or HELOC, this means additional payments on top of your mortgage. A cash out refinance pays off your existing loan and gives you a single new mortgage with a higher amount and possibly a lower interest rate.

A cash out refinance is an option if your home is worth more than you currently owe. You will need to qualify for the new mortgage amount and have a minimum amount of equity. In most cases, the maximum loan-to-value ratio (LTV) with a cash out refi is 75%, which means you can borrow up to 75% of the current value of your home. You will need to have at least 25% equity. A cash out refi may also require having 2-6 months of reserves in the bank depending on your debt-to-income ratio, LTV ratio, and credit score.

Rate and Term Refinance

A rate and term refinance is the standard type of refinance and the most common. With this option, your original mortgage is paid off and replaced with a new loan that has a new term and new rate.

This option can allow you to refinance an adjustable rate mortgage into a fixed-rate loan for more stability or change the term of your loan (such as switching from a 15-year to a 30-year mortgage).

If you only want to change your loan program or get a better interest rate, this type of refinance is a good option.

FHA Streamline Refinance

If you have an existing FHA mortgage and you simply want a better term or interest rate, the FHA Streamline Refinance program may be for you. The Streamline refinance offers very limited credit documentation and underwriting with credit-qualifying and non-credit-qualifying options. There is also no appraisal required.

To qualify for a streamline refi, you must already have an FHA-insured loan and you must be current and have made on-time payments for the last 12 months. The refinance must also result in a net tangible benefit, which means the refinance will help you avoid future rate increases (by refinancing an ARM into a fixed-rate loan) or reduce your mortgage payment by at least 5%.

VA Streamline Refinance (IRRRL)

The VA Interest Rate Reduction Refinance Loan (IRRRL) program allows you to lower your rate by refinancing your existing VA mortgage. The IRRRL loan program makes it easy to lower your interest rate without new underwriting standards and the closing costs can be rolled into the new mortgage for no out-of-pocket costs.

To qualify for a VA Streamline refinance, you must be current on your loan with no more than one 30-day late payment in the last 12 months and your new monthly payment must be lower than your current mortgage payment.

Considering refinancing your mortgage? Contact Primacy Mortgage today to speak with a loan officer who can help.