With mortgage rates at all-time lows, it may be the right time for you to refinance your existing mortgage. As of today (09/07/2020), the 30-year rate is sitting at 2.75% to 3.250% depending on your credit score and equity in your home. If your current rate is 3.875% or above you should definitely consider refinancing. Before you get started there are a few items to consider before you make your final decision:
How much longer do you plan on staying in your home?
The general rule of thumb states that you want to be able to cover all of your closing costs in less than 36 months of payment savings. If you’re moving in the next 36 months or less refinancing a Mortgage is counter-intuitive. The math is easy to calculate, just take your total 3rd party fees (closing cost) and divide it by the monthly payment savings, if that number is more than 36 months it probably doesn’t make any sense unless this is the last house you plan on living in.
I currently have an FHA loan, should I consider going to a conventional?
The answer is almost always yes, but not always. FHA is a great way to get into a mortgage with very little out of pocket, it also allows you to qualify with lower credit scores (580-660). FHA requires you to pay MIP (mortgage insurance premium) for the life of the loan regardless of your equity in the property. A conventional require PMI (private mortgage insurance which is very similar to MIP) as well but only when you are putting down less than 20%. Typically, conventional PMI has much lower monthly premiums than MIP and once you reach 20% equity you can request a cancellation which will lower your payment by as much as $200 per month. PMI is automatically canceled when your loan balance reaches 78% of the original sales price.
5 Things You Need to Know Before Refinancing | Rock Mortgage — Houston, Texas
How much longer do you plan on staying in your home?
The general rule of thumb states that you want to be able to cover all of your closing costs in less than 36 months of payment savings. If you’re moving in the next 36 months or less refinancing a Mortgage is counter-intuitive. The math is easy to calculate, just take your total 3rd party fees (closing cost) and divide it by the monthly payment savings, if that number is more than 36 months it probably doesn’t make any sense unless this is the last house you plan on living in.
Should I start over at the original term?
If you are 4 years into a 30-year mortgage you may not want to start over again at 30 years, you may want to consider selecting a 20-25-year term and with the lower rate keep the same payment or depending on your rate savings drop your payment when refinancing your Mortgage. A lot of our older clients will reduce their term to 10-15 years which will save them thousands in interest especially if they plan in living in the property for the remainder of their lives.I currently have an FHA loan, should I consider going to a conventional?
The answer is almost always yes, but not always. FHA is a great way to get into a mortgage with very little out of pocket, it also allows you to qualify with lower credit scores (580-660). FHA requires you to pay MIP (mortgage insurance premium) for the life of the loan regardless of your equity in the property. A conventional require PMI (private mortgage insurance which is very similar to MIP) as well but only when you are putting down less than 20%. Typically, conventional PMI has much lower monthly premiums than MIP and once you reach 20% equity you can request a cancellation which will lower your payment by as much as $200 per month. PMI is automatically canceled when your loan balance reaches 78% of the original sales price.
What will happen to my existing escrow account?
Your servicer typically will refund your full escrow balance approximately 30 days after closing. In many cases, the borrower can request a Net Escrow Payoff. This allows you to immediately use the balance of your escrow account and apply it to the closing costs associated with your refinance.Will my servicer change after refinancing Mortgage?
If you are a repeat client, we’ll always try to send you back to your current servicer assuming that servicer is offering the lowest rate. Rock Mortgage only originates mortgages, we don’t have a servicing dept. as of yet. We will fund your loan out of our credit line and within 7-10 days sell your loan to the servicer that we locked it with. As you may know, your servicing can change multiple times throughout the life of your loan, but no one can change the terms of your loan. For a free quote please reach out to any of our loan officers at 832-230-3067 or you can go to www.rockmtg.com and click on the “Refinance” tab and start your application.
5 Things You Need to Know Before Refinancing | Rock Mortgage — Houston, Texas