Should You Refinance Your Home In 2019?

how much are closing costs Should You Refinance Your Home In 2019?Did you refinance your mortgage a few years ago when refinance rates were at near historic lows? Depending on your situation today’s refinance rates still might be lower and you could find yourself asking, “Should I refinance my home loan again?” There are arguments against serial mortgage refinancing because it becomes too difficult to recoup your closing costs; however, there are also situations when it makes perfect sense to refinance your home one more time. Here are several of the pros and cons of home refinancing to help you make an informed decision and avoid losing your hard-earned cash.

Serial Mortgage Refinancing Gets Expensive

Financial analysts and reporters are always predicting that refinance rates have bottomed out and speculating how the market will correct to over six percent. Despite this, depending on the type of mortgage you’re shopping for it’s still possible to get refinance rates as low as 2.87%.

Granted that’s a 5/1 Adjustable Rate Mortgage and you really need to know what you’re doing with a home loan like that; however, there are still 30 year fixed rate deals to be found in the neighborhood of 3.12%.

If you got less than a stellar deal several years ago you might be surprised to find that you can qualify for attractive rates with several of today’s best mortgage lenders.

When Is Home Refinancing a Bad Idea?

One of the biggest problems with refinancing any mortgage loan is that you’re resetting the clock on your home loan’s amortization. Mortgage amortization is a fancy term that simply describes the process of paying down your home loan over time.

Your mortgage loan is front-loaded with interest, meaning in the early years the majority of your payment goes into the lender’s pocket as interest. Over the years this gradually shifts and you begin building equity in your home at a faster rate. As soon as you refinance the rate you’re building equity all but grinds to a halt.

If you’ve been paying ten years on a 30-year fixed rate mortgage and you refinance with another 30-year home loan, you’re right back where you started stuffing cash in your lender’s pockets.

Depending on where you live in the country slowing your progress of building equity could also result in being underwater, meaning you owe your lender more than your home is worth.

There’s More To Life Than Low Mortgage Rates

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IRRRL Mortgage Refinancing for Veterans

If you’re paying on a VA mortgage or are veteran with a conventional mortgage and want to take advantage of today’s low refinance rates there are several options available to you. According to the Veteran’s Administration, many veterans are struggling with qualifying for mortgage refinancing based on their employment status or income. Here are the basics you need to know about the VA government refinance program to help you lower your payment with today’s low mortgage refinance rates.

VA Interest Rate Reduction Refinancing Loan

The first mortgage refinancing option available for homeowners with an existing VA home loan is the Interest Rate Reduction Refinancing Loan (IRRRL). This is the VA version of the streamline refinance which requires little documentation or qualifying. In order to be eligible for the IRRRL refinance you must already have a VA mortgage loan and demonstrate a tangible benefit from the new home loan. This benefit would be lower refinance rates or converting from an adjustable rate mortgage to a fixed rate home loan.

You must be current on all of your mortgage payments and not have more than one 30-day late payment during the last year. You’ll be charged a fee to fund your IRRRL refinance of .5 percent of your home loan amount. You can pay this out of pocket at closing or roll the funding fee into your mortgage balance. If you’re a disabled veteran it is possible to get the funding fee waived.

The Interest Rate Reduction Refinancing Loan does not allow you to take any cash out against your home equity. Finally, you cannot consolidate your first and second mortgages using the VA streamline refinance.

The VA does not require a minimum credit score, home appraisal or proof of income to qualify for the IRRRL; however, many lenders enforce their own program rules called overlays. Some lenders require a minimum credit score of 640 or better just to qualify. If you find that you have trouble qualifying for the VA IRRRL because of lender overlays consider shopping around from a variety of lenders.

Not all lenders enforce program overlays when it comes to Interest Rate Reduction Refinance Loans. Community based and military credit unions are a good starting point when shopping for mortgage refinancing because they typically offer the lowest fees and refinance rates.

Other Mortgage Refinancing Options

If you’re a veteran and don’t already have a VA mortgage it is possible to refinance with a standard VA home loan. Be prepared to submit full documentation and meet the minimum qualifications for a VA mortgage loan. If you’re already paying on a VA mortgage and cannot find a lender to approve your IRRRL refinance you might still qualify for mortgage refinancing with the standard VA refinance. If you’re already in a VA mortgage and good credit and 20 percent equity you might want to look at both options to see which is cheaper.

If you decide to refinance with the standard VA mortgage you can expect to pay a loan origination fee which depending on the lender could be cheaper than paying the funding fee. If you’re short of cash it is possible to take higher refinance rates on a standard VA mortgage refinance to pay your loan origination fee and closing costs; however, in this case the IRRRL would most likely be the more attractive option.

If you’re looking to cash out on your standard VA mortgage refinance most lenders won’t let you borrow more than 90 percent of your loan-to-value ratio even though the VA allows up to 100 percent cash-out refinance loans.

Your Mortgage Refinancing Fees Matter

If refinancing with a standard VA home loan is going to be your best option remember that just because you’re getting a VA mortgage doesn’t mean you don’t have to worry about lender fees. The fees you pay for loan origination and closing costs will make or break the deal you’re getting on your VA refi. This includes paying unnecessary discount points to buy down your refinance rates.

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You can learn more about getting the best deal on your VA mortgage refinance by checking out my free Underground Mortgage Videos.

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What is a VA Streamline Refinance?

VA mortgage loans are a program backed by the Federal Government to offer low-cost home loans to our nation’s veterans. The VA Streamline Refinance is a way for existing VA mortgage holders to take advantage of today’s low refinance rates with the agency’s Interest Rate Reduction Refinance Loan (IRRRL). Here’s what you need to know about VA Streamline Refinance and how it can lower your monthly payment and save you thousands of dollars.

VA Streamline Refinance Definition

VA mortgage loans are extremely attractive as they allow veterans to buy homes with zero money down without Private Mortgage Insurance (PMI). The term streamline refinance applies to FHA home loans and the HARP refinance for Fannie Mae & Freddie Mac; however, the VA’s Interest Rate Reduction Refinance Loan does the same thing.

If you don’t already have a VA home loan, in order to qualify you must have served in the armed forces or Coast Guard for 181 days during peacetime or six years in the Reserve or Guard. If you lost a spouse in the line of duty you may also qualify for a VA mortgage. If you served on active duty or in the Guard or Reserve you must have been honorably discharged to qualify for a VA purchase loan or a VA streamline refinance.

VA Interest Rate Reduction Refinance Loan

Qualifying for a VA Streamline Refinance allows you to lower your payment by taking advantage of today’s low mortgage refinancing rates. The streamline refinance process is extremely easy due to reduced paperwork and processing. If you’ve already got a VA home loan consulting a good mortgage broker can complete your Interest Rate Reduction Refinance Loan in under a month.

Your closing costs from a VA streamline Refinance can be rolled into the cost of your mortgage allowing you to close without paying out-of-pocket. It is also possible to have your closing costs and origination fee paid by accepting higher refinance rates from Yield Spread Premium. Just make sure the lender and broker aren’t gouging you on the fees you’re paying to close.

VA Streamline Refinance Requirements

As with any government refinance program there are requirements you must meet to qualify.

  1. You must be current on your payments
  2. You can have no more than one late payment during the past 12 months
  3. Your new payment must be lower unless you are refinancing your ARM
  4. Cash-out refinancing is not allowed
  5. Your home must be owner occupied
  6. You must already have a VA home loan on the property

The requirement for VA streamline refinance that you must already have a VA mortgage is often called VA to VA mortgage refinance. The IRRRL cannot be used by veterans that did not buy their homes with a VA mortgage loan.

VA Cash-Out Refinancing Is Possible

There is another program that allows veterans to cash-out equity in their homes while refinancing. The VA cash-out refinance works on any conventional or VA mortgage loan and allows you to borrow against equity in your home. The VA cash-out refinance does not work like a home equity loan but replaces your existing home loan. If you qualify you can refinance for up to 100% of your home’s value; however, you should probably think twice before doing this as you’ll quickly find yourself underwater in today’s economy.

The advantage of the VA cash-out refinance is that it works with any mortgage. Conventional, FHA, even USDA home loans are eligible meaning if you didn’t use your VA home loan to purchase you can use it to refinance. VA home loans generally come with lower interest rates than FHA home loans and do not require Private Mortgage Insurance like the FHA.

Additional VA Streamline Refinance Facts

If you used a VA mortgage loan to buy your home you will not need to get a new Certificate of Eligibility (COE) to qualify for your Streamline Refinance. You should note that the VA does not regulate interest rates for veterans under the VA mortgage program; they only insure the loan against default.

VA refinance rates are controlled by banks and lenders; shopping for the lowest interest rates and fees is important regardless of what government refinance program you’re using. You are not required to stick with your existing lender for either VA refinance program.

Lenders are not required to check your credit or have you pay for an appraisal as part of the VA streamline process; however, lenders are free to set their own requirements to qualify. Don’t be surprised if your lender pulls your credit or asks for a new appraisal on your property.

If you’re underwater in your existing VA mortgage it is still possible to qualify for an Interest Rate Reduction Refinance Loan although you may have trouble finding a lender to approve your application. VA home loans are not eligible for refinancing under the Home Affordable Refinance Program (HARP 2.0 & HARP 3.0).

If you’re eligible the VA Streamline Refinance is one of the best government refinance programs available. The main advantage is that VA home loans do not require Private Mortgage Insurance (PMI) which could save you thousands of dollars. Mortgage refinance rates are at their lowest levels in history so there is no better time to take advantage of your veteran’s benefits.

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You can learn more about getting the best deal on your VA streamline refinance by avoiding unnecessary fees and markup by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to get you started finding the lowest refinance rates without unnecessary points or fees…

No Closing Cost Refinance

No closing cost refinance offers allow homeowners short of cash take advantage of today’s low mortgage rates. Sounds good, but if lenders offer no closing cost refinance loans then why isn’t everyone refinancing this way? There is of course a catch which could wind up costing you thousands of dollars unnecessarily. Here are the pros and cons of no closing cost refinance offers to help you make an informed decision for your next home loan.

How Does No Closing Cost Refinance Work?

There’s no free lunches for pretty much everything these days and this is doubly so when it comes to mortgage refinancing. No closing cost refinance loans still have closing costs, every mortgage has fees regardless of what you’re doing; however, in this case the lender is paying your underwriting and loan origination fees for you.

Why would a lender pay your mortgage fees for you? They do this because you’re accepting higher than market refinance rates, meaning your payments will be higher than necessary for the entire duration of your home loan. This markup of your interest rate is called Yield Spread Premium. The cash lenders pay can be used to pay your broker’s fee or in the case of no closing cost refinance offers all of your fees.

Yield Spread Premium is Alive & Kicking

Many homeowners incorrectly think the use of Yield Spread Premium was outlawed in the United States. This is simply not the case. The only thing that changed was that if your mortgage broker accepts lender paid compensation in the form of Yield Spread Premium they cannot also charge you the loan origination fee. This “double-dipping” is partially what earned mortgage brokers a reputation for being money-grubbing used car salesmen.

How does Yield Spread Premium work? It’s a pretty simple concept to wrap your head around. For every .25 percent you agree to pay above par refinance rates the lender pays one percent of your home loan towards the origination fee and closing costs. Since your monthly payment is based on your mortgage rate and term length any amount of Yield Spread Premium on your loan is going to result in higher payments.

Is No Fee Mortgage Refinancing Worthwhile?

For some people who simply don’t have the cash to take advantage of today’s low refinance rates it can be worthwhile, especially if you’re paying six percent or higher on your existing mortgage. Here’s an example to illustrate what the markup does to your payment on a typical mortgage refinancing transaction.

Suppose you’re going to refinance your home for $300,000. Your current home loan has an interest rate of 6 percent and a monthly payment of $1,798. Considering 30 year fixed refinance rates are currently right around four percent mortgage refinancing makes sense for any homeowner in this situation. In this example we’ll use $6,000 as estimated closing costs including the origination fee, appraisal, attorney fees and underwriting fees. In order to cover $6,000 in mortgage fees you’d have to accept half a point in Yield Spread Premium to get your fees paid. In this case refinance rates of 4.5 percent would get the job done; however, what does this markup do to your payments?

If you paid your own closing costs and closed with refinance rates of 4 percent your monthly payment would be $1,432. The no closing cost refinance at 4.5 percent gets you a payment of $1,520 per month. That’s a difference of $88 per month or $1,056 per year. After five years you’ll have paid $5,280 for $6,000 in closing costs. Considering that the average homeowner refinance every 4-5 years in this example the no closing cost refinance offer makes sense if you ditch the mortgage after five years. Keep this home loan for any longer than five years and you’ll start losing money.

Should you take one of these no closing cost refinance offers? On paper they can seem like a good deal when you run the numbers, especially if not having cash would prevent you from lowering your payments with today’s ridiculously low refinance rates. Just make sure that your loan contract doesn’t include a prepayment penalty as this would make getting out of the loan a losing proposition down the road when you’re ready to sell or refinance again.

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You can learn more about getting the best deal on your next home mortgage while avoiding unnecessary points and fees by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to help you find today’s best mortgage lenders without falling for unnecessary discount points or fees…

Mortgage Tips You Need to Know

For most people their homes are the single most important purchase made in a lifetime; however, many people put more effort into shopping for a plasma television. Common mortgage mistakes drive your payment up by hundreds of dollars for no reason. Here are several mortgage tips you need to know to avoid falling in the same trap costing your neighbors thousands of dollars.

My Top Mortgage Tips

The most common mortgage mistake is overpaying the loan origination fee. Your loan originator is the person (loan officer or mortgage broker) arranging your purchase or mortgage refinance loan. Most loan originators work for a commission paid by you or your lender. Wait, you OR your lender? Why not just let the lender pay your loan originator’s fee and closing costs?

I’m sure you’ve seen those no fee refinance offers advertised on television. What’s happening with no fee mortgage refinancing is that your loan origination fee and often closing costs are paid by the lender in exchange for your accepting mortgage rates. Rather than paying a few thousand dollars up front you’ll have a higher monthly payment for as long as you keep the loan.

If you’re going to pay the origination fees yourself to avoid higher mortgage rates and payments how much should you be paying? A reasonable amount to pay for the mortgage origination fee is one percent of your home loan amount; however, I’ve reviewed several community based credit unions here that have loan origination fees as low as a flat $400.

Considering that the fees you pay when refinancing your mortgage make or break the deal you’re getting I often recommend that people start their mortgage shopping looking at hometown credit unions.

Why Origination Fees Are So Important

I mentioned the closing costs you pay make or break the deal you’re getting. The reason fees are so important is that you have to recoup your out-of-pocket expenses for loan origination and closing before you benefit from today’s insanely-low mortgage rates. If you never break even recouping out-of-pocket expenses you’re going to be losing money no matter how sweetheart the deal.

How do you break even from mortgage refinancing? Here’s an example to illustrate how recouping closing costs works. You should note that this example is only valid if you keep the same term-length (30 years for example) or go shorter. If you refinance with a longer term-length than you had before it’s going to be impossible to break even because of the money you’re losing for the extra financing.

Suppose for example you’re refinancing your home for $250,000 at 4 percent. It’s going to cost you $5,000 for the loan origination fee, appraisal, attorney and underwriting fees. Your old payment at 6 percent was $1,498. Mortgage refinancing at 4 percent gets you a payment of $1,193 which is a monthly savings of $305. You can approximate how long it’s going to take you to break even by dividing your closing costs by the amount you’re saving each month. In this case dividing $5,000 by your monthly savings of $305 gives us 17 months to break even. If you sell or refinance again during this period you’re walking away from cash on the lender’s table.

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Another common mortgage mistake is trying to get the lowest refinance rates at the expense of discount points. If you’re not already familiar with discount points this is a fee you pay to buy down your interest rates. A relic of the 80s when refinance rates were double digits, homeowners paid the fee to get a lower payment.

Lenders still use discount points to improve their bottom line at the homeowner’s expense. Should you pay discount points on your next home loan? Mortgage rates are at their lowest levels ever… In fact, 15 year mortgage rates recently slipped below 3 percent. Paying unnecessary discount points is just more cash out of your pocket that you could be using for other things increasing the amount of time needed to break even.

The problem is most lenders advertise purchase and refinance rates that include discount points so be sure and check the fine print. When comparing offers from the best mortgage companies be sure and compare the lender’s par rates AND the loan origination fee. Par rates do not include discount points or markup for Yield Spread Premium as seen with those no fee refinance offers.

Invest a few hours of your time doing your homework with these mortgage tips and you’ll save yourself thousands of dollars from unnecessary points and lender junk fees.

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You can get more mortgage tips for avoiding lender junk fees on your next home loan by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to get you going without the common mortgage mistakes costing your neighbors thousands of dollars…