Know Your Options When You're Ready to Refinance
As you may know, mortgage refinance is the process of paying off your existing mortgage by creating a completely new replacement loan. You’ve probably noticed that many of your fellow Portland-area homeowners have been refinancing lately – either you overhear it at the local coffee shop, or you’ve noticed quite a few home renovations happening in your neighborhood of late. So why exactly has mortgage refinancing become such a popular option these days?
Why Refinance Your Portland Area Home Now?
For one thing, mortgage interest rates are at historic lows. Following the financial crisis, the Federal Reserve used its considerable influence to lower interest rates in an effort to spur economic growth.
As you might imagine, these ultra-low interest rates won’t last forever. Signs of economic recovery are everywhere. Desirable urban markets such as Portland and its surrounding area have made impressive gains, with some even surpassing their pre-bubble home values. The Fed has been hinting at rate hikes, and many financial experts are predicting that higher rates will eventually have to take effect.
How Will You Use Your Refi Money?
For mortgage borrowers who took out loans when interest rates were several percentage points higher, these low interest rates can mean many thousands of dollars in savings over the remainder of the mortgage. But it’s not just the savings that makes refinancing so attractive.
You might want to refinance your Portland home to restructure your monthly budget. A refi can help you keep more money in your pocket each month, allowing you to consolidate debt and to live a more comfortable lifestyle.
Refinancing can also be used to free up money for other investments such as stocks, index funds, or second homes. And there’s no better investment than education – many Portland-area homeowners are taking advantage of refinancing to pay for college tuition for themselves, or for their children.
Some homeowners take advantage of refinancing to gain access to capital for renovations or repairs that they’ve always wanted to do. Are you interested in remodeling your kitchen, building a home theater and finishing off your basement, or installing a rooftop solar array and saving some money on your monthly power bills? Refinancing can offer a handy source of low-interest funds that can be used for home improvement.
Try our calculator and find out if refinancing is the best option for you.
Portland Homeowners, Now Is the Time to Refinance
In short, there are plenty of smart reasons to refinance your Portland-area home, and there’s never been a better time to do just that. So what are you waiting for? There are so many great reasons to refinance your home mortgage, and we may never see interest rates this low again.
Get in touch with Options Financial Residential Mortgage today. We’ll help you find a refinancing option that’s tailor-made for your unique situation.
How Will My Loan Be Different?
You might be wondering how your loan might change once you've refinanced. Your new loan will be different than your old loan in one or more of the following ways.
The length of time it takes you to pay off your loan – either longer or shorter.
A longer term will typically reduce your monthly payments. A shorter term will typically increase your monthly payments. If you still wish to complete your payments in the original time allotted during your initial mortgage, you can calculate your monthly payments to fit within that time frame and keep your loan term the same.
This may be the right option for you if you are looking to pay off consumer debts that are not tax deductible. By consolidating payments such as your car payments, credit card debt, or outstanding student loans into your mortgage, you can reduce your monthly payments into one simple bill. It is possible you may also gain tax benefits that will further reduce your monthly payments. This will also allow you to free up your Debt to Income (DTI) ratio on your credit. Please consult your tax advisor for qualifications.
There are two types of loans you can choose from based on your short and long-term goals:
Fixed-rate mortgage refinance loan
- A fixed loan is generally the best option if you are planning to stay in your home for a long period of time.This type of loan has a fixed monthly payment and interest rate that will never fluctuate during your loan term.
Adjustable-rate mortgage refinance loan
- An adjustable loan works best for short-term housing commitments. During the first years of your loan term, you will have a very low fixed monthly payment with a fixed monthly interest rate. After the conclusion of your fixed payment period, your principal payment will not change; however, your interest rate will increase based upon current housing market conditions. This results in a payment that will fluctuate.
A Conventional loan comes from a lender.
This is the most common type of loan available for people looking to refinance their mortgage. A conventional loan can either be fixed or adjustable.
An FHA (Federal Housing Administration) loan is acquired through a lender and insured by the government.
This type of loan offers an easier approval process for first time home buyers due to reduced credit and income requirements. It also features a lower down payment.
VA (Veterans Affairs) loans are acquired through a lender and insured by the government.
To quality for a VA loan, you must be active or have served in the United States Military. A VA loan has qualification guidelines that are more lenient and flexible…similar to an FHA loan.
If you are borrowing more than 80% LTV (Loan To Value), you will need to have mortgage insurance. Mortgage insurance compensates your lenders or investors for their loss if you fail to pay your mortgage. There are two types of mortgage insurance – borrower paid mortgage insurance and lender paid mortgage insurance.
Borrower Paid Mortgage Insurance (BPMI)
If you pay less than 20% down on your house, you will need to get borrower paid mortgage insurance.
This is a once-monthly insurance payment to your lender. Once you have paid down your principle to below 80%, or once you have 20% or more in equity, you can cancel your mortgage insurance. You may have the option to cancel your mortgage insurance before you have paid off 20% of your loan if your house is appraised for more than it was originally worth at the time you began your loan. However, your house must have increased in value enough for your equity to have reached a total of 20% or more when your total payments are applied along with your new appraisal.
Lender Paid Mortgage Insurance (LPMI)
The next type of mortgage insurance is LPMI. This type of insurance differs from BPMI because there is no monthly payment.
Instead, a slightly higher interest rate is added to your total monthly payment. This amount is then paid back to the lender through your monthly mortgage payments.
To better understand the topics regarding refinancing your home, please feel free to navigate through the associated links. We would love to speak with you if you have questions. Call us today!