Refinancing replaces your existing mortgage with a new loan and can be considered for a variety of financial goals. Depending on your current mortgage, available loan options and individual circumstances, refinancing may allow you to change your loan term or structure, move from an adjustable-rate to a fixed-rate mortgage, access available home equity, or obtain different financing terms.
The decision to refinance should be based on more than the interest rate alone. Closing costs, the amount of time you expect to remain in the home, your current loan balance and terms, available home equity, and your overall financial goals should all be considered.
Redwood Mortgage Services can help homeowners in Annapolis, Anne Arundel County and throughout Maryland review their current mortgage and explore available refinance options. We can compare the potential costs and benefits so you can determine whether refinancing makes sense for your situation.
Determining whether refinancing makes sense depends on your current mortgage, available loan options, home equity, closing costs and financial goals. Here are answers to some common questions homeowners have when considering a refinance.
Refinancing replaces your existing mortgage with a new loan. The new loan may have a different interest rate, term, loan type or balance depending on the type of refinance and your financial goals.
Refinancing typically involves closing costs that may include lender fees, appraisal fees, title and settlement charges, recording fees and other transaction costs. The actual amount varies based on the loan, property and individual transaction. Your Loan Estimate will provide a more specific breakdown of the anticipated costs.
Discount points are optional upfront fees that may be paid in exchange for a lower interest rate. One point equals 1% of the loan amount, but the amount by which a point may reduce the interest rate varies based on market conditions, loan type and pricing at the time of the transaction.
The interest rate represents the cost of borrowing the principal balance of the loan. The Annual Percentage Rate (APR) reflects the interest rate plus certain additional costs and fees associated with the loan, expressed as an annual percentage. APR can be useful when comparing the overall cost of different loan options.
With a fixed-rate mortgage, the interest rate remains the same for the life of the loan. An adjustable-rate mortgage (ARM) generally has an interest rate that is fixed for an initial period and may then adjust at specified intervals according to the terms of the loan.
A loan modification changes certain terms of an existing mortgage, while refinancing replaces the existing mortgage with a new loan. Loan modifications are generally handled through the current mortgage servicer and may be available in certain circumstances. Refinancing requires qualification for a new mortgage. The appropriate option depends on the homeowner's circumstances and goals.
There is no universal percentage by which your interest rate must decrease for refinancing to be worthwhile. A smaller rate reduction may make sense in some situations, while a larger reduction may not make sense in others. Consider the new loan's closing costs, monthly payment, loan term, how long you expect to keep the mortgage and your overall financial goals when evaluating a refinance.
Private Mortgage Insurance (PMI) is generally required on certain conventional loans when the borrower has less than 20% equity or makes a down payment of less than 20%. PMI protects the lender rather than the borrower. Requirements for removing or canceling PMI depend on the loan and applicable guidelines.
An appraisal may be required when refinancing, but not every refinance requires one. Depending on the loan program, property and transaction, an appraisal waiver or other valuation option may be available.
Credit is one of several factors considered when qualifying for a refinance. Requirements vary by loan program and lender, and factors such as income, debt, home equity, loan-to-value ratio and overall financial profile may also affect eligibility and available loan terms.
Equity requirements vary depending on the refinance program, property type and purpose of the refinance. Some programs may permit higher loan-to-value ratios than others, so homeowners should review the requirements for the specific loan program they are considering.
A cash-out refinance may allow eligible homeowners to replace their existing mortgage with a larger loan and receive a portion of their available home equity in cash. The amount available depends on factors such as the property's value, existing mortgage balance, loan program and borrower qualifications.
Yes. A refinance interest rate may generally be locked for a specified period once the lender's requirements for a rate lock are met. Rate-lock terms and availability vary by lender and loan program.
Homeowners consider refinancing for many different reasons. The potential benefits depend on your existing mortgage, available loan options, home equity, closing costs and financial goals. Here are some common reasons a homeowner may explore refinancing.
Refinancing may allow you to change the term or structure of your mortgage. Depending on available interest rates and loan terms, this could affect your monthly principal and interest payment. Extending a loan term may reduce the monthly payment but can increase the total interest paid over time, while choosing a shorter term may increase the monthly payment but reduce the length of the loan.
A cash-out refinance may allow eligible homeowners to access a portion of their available home equity for purposes such as home improvements, education expenses or other financial needs. Because a cash-out refinance increases the amount borrowed against the home, homeowners should carefully consider the costs and long-term impact before proceeding.
Some homeowners consider a cash-out refinance to consolidate higher-interest debt. This may simplify monthly obligations or change the interest cost of certain debts, but it also converts unsecured debt into debt secured by the home. Closing costs, the new mortgage terms and the total cost of borrowing should be considered before using home equity for debt consolidation.
Depending on the type of mortgage, current loan balance, property value and applicable requirements, homeowners may have options for removing mortgage insurance. Refinancing is one possible option in certain situations, although it is not always necessary to refinance to remove PMI.
Homeowners with an adjustable-rate mortgage may consider refinancing into a fixed-rate mortgage for a more predictable interest rate and principal-and-interest payment. Whether this makes sense depends on the existing loan, available refinance terms, closing costs and how long the homeowner expects to keep the new mortgage.
The documentation needed for a refinance varies depending on the loan program, property and your financial situation. Having commonly requested information available can help make the process more efficient. Your mortgage professional will provide a specific list based on your refinance.
Recent pay stubs, if applicable
W-2s or other income documentation, if applicable
Additional documentation may be requested for self-employed borrowers or borrowers with other sources of income
Recent bank or investment account statements, when required
Information about your current mortgage and other debts
Documentation for other assets or financial accounts when needed for qualification
Current mortgage statement
Property information and other documentation requested for the refinance
Not every borrower will need every document listed above, and additional documentation may be required depending on the loan program and individual circumstances.
These materials are not from HUD or FHA and were not approved by HUD or a government agency and in some cases a refinance loan might result in higher finance charges over the life of the loan.