Many homeowners are in a good position to refinance if you are planning to live in the home for a long period of time and feel confident they will be approved for a lower interest rate, changing the loan term or eliminating private mortgage insurance. Factors to consider before refinancing are your total savings, the cost to refinance and how long you plan to own the home.

Personal Financial Picture

Since a refinance completely replaces your current loan with a new mortgage loan, it’s important to understand that a number of criteria will be taken into account, just like the first time you went through the home buying process. For example, your credit will be checked, your income will be verified and your finances will be thoroughly reviewed.

Different Refinance Loan Options

Most homeowners refinance to lock in a better interest rate or lower their monthly payment. Some homeowners opt to apply for a cash-out refinance, which allows homeowners to borrow against the equity earned in your home. This is often a sound strategy for funding home improvement projects or paying off high-interest debt.

Refinance Costs

Costs vary from lender to lender but are not too different then the fees paid when purchasing your home. The costs to refinance your home mortgage loan may include:

• Lender fees, loan origination charges or points
• Third-party fees such as the appraisal, notary or credit check
• Insurance fees
• Title search
• Escrow costs

Just like any other home loan, your closing costs will differ depending on the new loan amount, your credit score and debt-to-income ratio, loan program and interest rate.

Break-even Point

An important consideration when deciding whether to refinance a mortgage is at what point in time you’ll break even on refinancing costs, also called the break-even point.

The break-even point is calculated by adding up the refinancing closing costs and determining how long it will take to recoup those costs with your new loan. Refinancing makes more sense if you plan to stay in your home longer than the break-even point, otherwise, you could potentially lose money.

Reasons to Refinance

There are a variety of reasons to refinance a home mortgage loan. Here are a few common reasons why homeowners decide to refinance a mortgage that may help financially:

1. To lock in a lower interest rate and lower monthly payments. Homeowners who feel confident they are eligible for a better rate and lower monthly payments are one of the most common groups of refinance applicants.
2. To switch from an adjustable-rate mortgage, or ARM, to a fixed-rate loan. Homeowners who took out an ARM but plan to stay in their homes for a long period of time may want to refinance into a more stable, fixed-rate loan before the ARM resets to a variable rate and payments become unaffordable.
3. To pull out cash from their home’s equity. A cash-out refinance lets you access the equity you’ve earned in your home by replacing your existing mortgage with a new one for a larger loan amount, withdrawing the difference in cash.
4. To remove a borrower from the mortgage. This is common when a homeowner is looking to remove a co-signer such as a spouse, family member or close friend off the loan. The person who is refinancing the loan into his or her name will need to qualify for the new loan on their own.
5. To remove FHA mortgage insurance. For borrowers with a loan insured by the Federal Housing Administration, or an FHA loans, refinancing into a conventional mortgage can eliminate annual mortgage premium payments once earned 20% equity in your home.

Whether you’re looking to lower your monthly payment or tap some earned equity, when you’re ready to start the mortgage refinance process, contact an Home Loan Express loan specialist to get you a competitive rate.