Mortgage Rates 20 Year fixed refinance
Yes, you can save money by doing a simple refinance in which you swap a lower rate for your existing higher rate. But that's just 1 way - and 1 reason - to refinance. There are at least 4 other reasons to refinance. Here are some of your options:
Rate and term refinance: Nowadays this is the most common form of refinancing. When you get a rate and term refinance, you replace your mortgage with a loan sporting a lower interest rate, and for roughly the same term. The term is the payoff period: A 30-year mortgage has a 30-year term.
Cash-out refinance: These were popular during the housing boom and contributed to the bust. When you get a cash-out refi, you borrow more money than the outstanding mortgage balance and you receive the difference in cash.
For example, you might have borrowed $225, 000 a few years ago, and you've been making payments faithfully and now you owe $200, 000. Meantime, your home's value has swelled. It can be appraised at $300, 000. In this case, you can refinance for more than $200, 000. In fact, you can borrow up to $240, 000 without having to pay for mortgage insurance.
During the boom, a guy on my street got several cash-out refinances. At least 1 was a subprime loan. He ended up owing much more than he originally paid for the house. According to county records and interviews with gossipy neighbors, he used his cash-out money to buy a Volkswagen Tiguan, a Harley-Davidson, and presents for his girlfriend, which was uncool because the guy was married. Eventually he couldn't afford the payments, forfeited the house, sold the Harley to a neighbor who told me about the girlfriend, and moved out of state.
There are responsible ways to use a cash-out refi. You can take the money and use it to pay off high-interest debt. Especially if the high-interest debt is a home equity loan. Or you could use it to pay for home improvement: a swimming pool or solar panels or whatev.
Shorten the term: You got a 30-year mortgage 3 or 5 years ago, and you want to refinance. You don't have to start over with a 30-year repayment period. You can ask to pay it off in a shorter time than that - 27 years or 25 years or 20 years or 15 years. Your choice. If your preferred payoff period is more than 20 years, you'll probably have to get a 30-year mortgage and ask the lender to amortize it over your preferred, shorter period. Most lenders offer 15-year mortgages, which generally have lower interest rates than 30-year loans. A few lenders offer 20-year mortgages with slightly lower rates.
Cash-in refinance: Yes, in addition to the cash-out refinance, there's such a thing as the cash-in refi. This happens when you have some money lying around and you spend it to pay off part of the old mortgage. Then the new, refinanced loan is for less than the old loan. In today's low-interest environment, I think the main valid reason to do this would be to get rid of mortgage insurance. Otherwise, that spare cash would best be used to invest in something with a higher return than your mortgage interest rate. Read more details in this old article from back when cash-in refis were more popular.
Divorces can force a variety of the cash-in refi, in which 1 former spouse pays off a portion of the outstanding loan balance and the remaining spouse refinances the loan in her or his own name.
Refinance to get rid of mortgage insurance: You made a down payment of less than 20% and you pay for mortgage insurance. But in the years since you got the mortgage, you paid down some of the debt and, more important, the value of your house went up a lot. If the outstanding loan amount is less than 80% of the home's appraised value, you might be able to refinance into a loan without mortgage insurance.
This can be an especially valuable tactic if you have a mortgage insured by the Federal Housing Administration - also known as an FHA loan. With modern-day FHA loans, you can't cancel the mortgage insurance - even when your loan-to-value ratio falls below 80%. The way to get rid of FHA mortgage insurance payments is to refinance (or to sell the house).
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I agree with Michael Cheng. If you have a great credit score, stable, verifiable income, verifiable cash on hand or assets, you are a dream client. By comparison shopping, you will be able to obtain a Loan Estimate from at least three different types of lenders: Talk with the mortgage department of where you currently bank. You already have a banking relationship with them. This is a good place to start. Next, apply with a local, licensed non-bank mortgage lender. Somebody located in the town in which you live. Last, apply with a local mortgage broker.