Just as there were several factors that went into your decision to get a mortgage in the first place, there will be several factors that will inform your decision to refinance. You are reading this because you are motivated to look into refinancing. Maybe you would like to lower your interest rate, or lower your payment. Perhaps you would like to get some cash out to pay down debt, pay for a wedding, buy a car or remodel your home. Whatever the reason, Silver Leaf Mortgage based in Denver, CO can help you!
The wealth in your home is yours to manage. So the question is, “How much will it cost to refinance, and is it worth it?” Some websites say the cost of refinancing a loan balance of $200,000 is 2% – 4%, which is $4,000 to $8,000. Contact Silver Leaf Mortgage where we have Senior Loan Officers who will find loan products that are more economical for you.
Additionally, other lenders say that refinancing requires “lots of paperwork.” At Silver Leaf Mortgage, we can help you refinance with a streamlined process that is simple and manageable.
As you weigh your options consider that there is a no-cost refinance option. This requires no out-of-pocket costs to you and is often a great solution. The costs are rolled into the loan. Closing costs with the title company are based on the value of the property and the amount of money you are borrowing.
Closing costs include the normal items such as a credit report, title search, closing protection letter, recording costs with the county, and unless the refinance is a streamline refinance for a government loan such as FHA or VA, costs will include an appraisal. There is a cost for the interest rate that you select. You will have to decide if you would like to “buy down” the rate with slightly higher closing costs, and if lower monthly payments are more suitable for you. Discussing your options with your Senior Loan Officer at Silver Leaf Mortgage will be very helpful.
Your Credit Score Can Help
Your credit score determines the rates that the lender is willing to extend to you. The three bureaus that report your credit score for a mortgage are Equifax, Transunion and Experian. The popular options of Credit Karma and others are not sufficient when refinancing.
A “tri-merge” report is required where each bureau contributes their information and the three reports show up on one document with three scores provided. For one borrower, the middle score is used. If there are two borrowers, the lowest middle score is used to determine what interest rate and types of loans are available to you.
Lenders typically offer rates based on a twenty-point spread for the credit score being used. For example, if your score falls between 620 and 640, it doesn’t matter if it is 620 or 636, the same rates and programs will be offered. If, however, your score is 641, you will be in the next bracket of interest rates which will offer better terms for you.
Your interest rate may be improved by paying down your credit cards. Interestingly, it is better to maintain a small balance on the card (perhaps 15% or less) than it is to close it out. This is because it is good when you have access to credit through the credit card, but you show that you are not using it.
When there is sufficient equity in your home (determined by the difference between the value of your property and the amount that you owe) you can tap into that equity by refinancing your current loan with a new loan that allows you to tap into up to 80% of your home’s value. This is called the loan-to-value ratio. If you have a VA loan, you may draw out 100% of the home’s value, but more about that later. Of course, you will have only one payment with your refinance loan.
It is up to you if a portion of your property taxes and insurance are collected by the lender each month in an escrow account. This is an easy and painless way to be sure that those obligations are met, and you hardly have to think about it! That means that your monthly payment will be slightly higher, and your closing costs will also be slightly more due to collecting a few months of taxes and homeowners insurance for the escrow account. This situation means that your monthly payment is PITI (covering Principle, Interest, Taxes and Insurance).
Some people decide that they will make the property tax and homeowners insurance payments themselves which results in a lower monthly mortgage payment and is referred to as P&I (Principle and Interest). Either way, you cannot avoid the payment of property taxes and homeowners insurance as they are requirements of every mortgage.
Home Equity Loan
A Home Equity Line of Credit (HELOC) is a second mortgage on your home based on the equity that is in the home. When you use the funds provided, you will have an additional mortgage payment. You may borrow up to 80% of the total loan-to-value ratio including your first mortgage and your second mortgage.
Rate and Term Refinance
When you have noticed that the interest rates currently are lower than your interest rate, you may be interested in refinancing. You may also want to either keep your current term (the length of time remaining on your current mortgage) or you may be interested in a different term, or number of years for your mortgage. At Silver Leaf Mortgage we have loan programs that allow you to keep your current term, so if you have 16 years left on your current mortgage, you can keep that length of time on the new loan when you refinance.
Many mortgages are for a 30-year term, but there are advantages to having a 15- or 20-year term. The savings in interest is significant, though the payments will be higher. When you refinance you can make these types of changes to your rate and term. Give us a call at Silver Leaf Mortgage to learn about all the options.
As mentioned earlier, a government loan such as FHA or VA have the advantage of being able to refinance without an appraisal and will need very little in the way of required documentation. This is called a Streamline Refinance and is very quick and easy.
Costs of Refinancing a Home Loan
When calculating the cost of doing a refinance, you will be able to see exactly how long it will take to “break even.” For example, if your mortgage payment will be reduced by $1,000 per month and the refinance costs come to $9,000, then in 9 months you will have reached a “break even” point and will also have had the immediate benefit of the increased cash flow that a lower payment provides.
Remember that in most cases, you can roll the refinance costs into the loan so that you do not pay anything out-of-pocket.
Loan Application Fee
Silver Leaf Mortgage has no Loan Application Fee.
Loan Origination Fee
Origination fees are how mortgage companies are compensated to be able to serve their clients. Origination fees are between 1%-3% of the loan amount on average.
The Home Appraisal
Except in the case of an FHA or VA Streamline Refinance, an appraisal will be required by the lender when you refinance. This is to determine the real value of the property. An appraiser is a professional who will typically look at the home values within one mile of your home and within the last six months. (If there are not sufficient comparable homes in that radius, the appraiser will expand the area.) An appraisal typically costs between $625 and $750. If you have a home that is over $1,000,000 the appraisal may be higher.
Your Senior Loan Officer will pull your credit with your permission early on in the process of doing a refinance. As mentioned earlier, your credit score will determine the rates that are available to you and the pricing for those rates. The cost of a credit report will be lower for just one individual (as little as $22) and slightly more for a joint credit report (usually not more that $50 – $60). It is affected by how many trade lines you have and how far back your credit history extends. Trade lines are things like credit cards, car loans, etc.
Every lender needs to know if you are in a flood zone and so a Flood Certification will be ordered for your property. It typically costs between $8 – $14.
Every mortgage loan, whether it is a purchase, refinance or reverse mortgage requires that a title company perform a search of the title history to be sure there are no unexpected liens on the property. They also charge about $250 for closing the loan. The total cost depends on the value of your property.
When your refinance is complete there is a three-day right of rescission – a waiting period by law in which you may change your mind about refinancing. After your refinance loan funds on the fourth day after your closing, the new deed of trust will be recorded with you County. In most cases the fee for recording the transaction with the county will be around $123.
You are in good hands with Silver Leaf Mortgage. We will guide you through the process that is simple and easy. Reach out to us and let us help you!