A real estate refinance can greatly lower monthly payments and reduce your mortgage insurance (PMI) costs. This refinancing is usually only available to homes worth less than 80% of their original value. Your lender will likely require an appraisal of your home before approving your application. Your lender will use this information to determine how much you can afford to borrow, and it will also help determine the interest rate you are charged.
The benefits of cash-out refinance in real estate are plentiful, but there are also some drawbacks. The lower interest rate you receive only applies to the loan amount if you originally bought the home at a high-interest rate. For example, if you bought your home in 2008, your cash-out refinance would likely yield a lower interest rate than you currently have. Also, the loan-to-value ratio of your home will be higher.
Refinancing your ARM mortgage to a fixed-rate loan can save you money on interest payments. It is worthwhile when you can save money on your monthly payment to recover your closing costs. To calculate if refinancing is worthwhile, divide the savings you can expect from the refinancing process by the number of closing costs. Generally, refinancing your ARM mortgage is worthwhile only if you plan to stay in the home for the time it takes for the refinance to pay off.
Cash-out refinance with your current lender:
When considering a cash-out refinance with your current lender, the first step is to find a lender that offers this type of loan. Many lenders will require you to have a certain amount of equity in your home before they approve your application. Typically, cash-out refinances require you to have at least 20 percent equity in your home to qualify. You may also have to pay closing costs, including an appraisal fee.
Refinance with a new lender:
While refinancing with a new lender is relatively quick, not all lenders process applications quickly. A quick approval does not necessarily mean favorable terms. To find the best refinancing lender, make sure to research lenders thoroughly. Look for one that offers prompt service, competitive rates, and favorable terms. Another factor to consider is how easy it will be to complete the paperwork. There are many forms to fill out, so take your time.