In a relatively low-interest-rate climate, there are both pros and cons to refinancing a mortgage. For example, your imp🍎roved credit ratingꦫ—or a decision to change the length of your mortgage—could also bring refinance terms that could save you money in the long run. But maybe you’re not planning to stay for the long run. Some special refinancing programs can be particularly beneficial for those who qualify. Here’s how to work through the decision-making process.

Should You Consider Refinancing Your Mortgage?

In thꦺ𒈔e past, low-interest rates have created a refinancing frenzy in the marketplace. But in any economy, the only way to know if a refinance makes sense for you is to consider the details of your unique situation.

How Much Lower Are Rates T♉han the One You Curren𓃲tly Have?

How much should interest rates drop to refinance? That’s not the right question. Instead of listening to “rules” about how much of a percentage change in interest rates you should look for before you refinance, look at how much money you’ll stand to save. A 1% rate reduction is a lot more meaningful if you have a $500,000 mortgage than if𓆉 you have one that’s $100,000.

How Long Do You Plan to Keep the Mortgage?

As when you purchased your home, you will have to pay closing costs on your refinance. If you’re planning on selling your house in a few years, you may barely break even (or actually come out behind) by refinancing.💜 How come?

If the monthly sa🧜vings for the remainder of your mortgage are not greater than the closing costs associated with the refinancing, you’ll lose out. If you roll the closing costs into your mortgage instead of paying them up front, you’re paying interest on them, so you’ll need to factor this expense into your break-even calculation.

Can You Refinance Into a Shorter Term?

If you have 20 years left on your mortgage and you refinance into a new 30-year mortgage, yo✱u may not save money over the long run (even with a lower rate)💧.

However, if you can afford to refinance that 20-year mortgage into a 15-year mortgage, the combination of a low﷽er interest rate and a shorter term will substantially reduce the total amount of interest you’ll pay before you own the house free and clear.

What You Stand to Gain

Done properly, a refinance can have both immediate and lasting♍ benefits. You may be able to do the following.

Get a Better Loan

Perhaps you are in a better financial position now than when you took out your existing mortgage. Refinancing may provide an opportunity to get a better interest rate or make a good mortgage even bett🐈er. Either way, you’ll increase your short- and long-term financial security and increase the odds that hard times won’t put you at risk of losing your home.

Increase Your Long-Term Net Worth

With 澳洲幸运5官方开奖结果体彩网:the savings from refinanꦐcing your mortgage, you’ll be spending less on interest. That’s money you can put away for retirement or use toward an🅘other long-term financial goal.

Increase Short-Term Cash Flow

If your refinance lowers your monthly payment, you’ll have more money to work with on a month-to-month basis. This can reduce the day-to-day financial pressure on your household and create opportunities to 🌱invest elsewhere.

Dangers of Refinancing

Refinancing a mortgage introduces new ♔elements into your financial situation. The risks from your original mortgage are still present, and a few new ones come to the surface.

Overpaying on Closing Costs­

Unscrupulous or predatory lenders can tack several unnecessary and/or inflated fees onto the cost of your mortgage. What’s more, they may not disclose some of these costs upfront, hoping that you will feel too invested in the process to back ou𝓰t.

Overpaying on I♒nterest Because You Want No Closing Costs

A refinance may not require any cash to close. One way lenders make up for this expense is to give you a higher interest rate. Let’s say you have two options: a♕ $20ꦓ0,000 refinance with zero closing costs and a 5% fixed interest rate for 30 years, or a $200,000 refinance with $6,000 in closing costs and a 4.75% fixed interest rate for 30 years.

Assuming you keep🃏 the loan for its entire 𒊎term, in scenario A, you’ll pay a total of $386,511. In scenario B, you’ll pay $381,586. Having “no closing costs” ends up costing you $4,925 over the life of the loan.

Losing Equity

The pa♓rt of the mortgage you’ve paid off, your equity in the home, is the only part of the house that’s really yours. This amount grows little by little with each monthly mortgage payment until, one day, you own the entire house and can claim every penny of the proceeds if you choose to sell it.

However, if you do a cash-out refinance—rolling closing costs into the new loan or extending the term of your loan—you chip away at the percentage of your home that you actually own. Even if you stay in the same home for the rest of your life, you might end up making mortgage payments on it for 50 years if you make poor refinancing decisions. You can end up 澳洲幸运5官方开奖结果体彩网:wasting a lot of money this way, not to mention never truly ow𝓰ning your home.

Negatively Impacting Your Long-Term Net Worth

Refinancing can lower your monthly 🐻payment, but it will often make the loan more expensive in the end if you’re aꦉdding years to your mortgage. If you need to refinance to avoid losing your house, paying more, in the long run, might be worth it. However, if your primary goal is to save money, realize that a smaller monthly payment doesn’t necessarily translate into long-term savings.

Refinancing Options

There are a couple of special refinancing programs that may be particular𓆉ly beneficial to qualified borro꧙wers.

High LTV Refinance Opt𝄹ion (Fannie Mae) and Freddie Mac Enhanced Relief Refinance (FMERR)

High 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) mortgage loans are those in which the amount owed on the mortgage is nearly equal to or exceeds the home's appraised market value. These 澳洲幸运5官方开奖结果体彩网:high LTV loans are considered high risk to lenders since a default or nonpayment by the borrower could result in the lender losing money if the bank 澳洲幸运5官方开奖结果体彩网:forecloses and sells th༒e home for less than the loan amount given to the borrower.

Unfortunately, Fannie Mae and Freddie Mac have temporarily suspended mortgage loan refinances under the high LTV programs. All high LTV refinances must have had their applications dated on or before June 30, 2021, and must be purchased or securitized on or before Aug. 31, 2021. Historically, the Fannie Mae (High LTV Refinance Option) and Freddie Mac Enhanced Relief Refinance (FMERR) programs were designed to replace the Home Affordable Refinance Program (HARP), which expired on Dec. 31, 2018.

HARP was set up to help homeowners who couldn't take advantage of other refinance options because their homes had decreased in value. Its goal was to improve a loan’s long-term affordability to help prevent people from losing their homes to foreclosure. Only mortgages held by Fannie Mae or Freddie Mac were eligible.

RefiNow (Fannie Mae) a⛎nd Refi Possible (Freddie Mac)

On June 5, 2021, Fannie Mae began to offer low-income mortgage holders a new refinance option through a program called “RefiNow,” meant to reduce their monthly payments and interest rates. On August 31, 2021, Freddie Mac began offering the same program, called “Refi Possible.” To be eligible, homeowners must be earning at or below 100% of their area median income (AMI).

Fannie Mae's RefiNow program offers several benefits for homeowners. First, it requires a reduction in the homeowner’s interest rate by a minimum of 50 basis points and a savings of at least $50 in the homeowner’s monthly mortgage payment. Second, Fannie Mae will provide a $500 credit to the lender at the time the loan is purchased if an appraisal was obtained for the transaction, and this credit must be passed on from the lender to the homeowner.

In order to qualify for Fannie Mae's RefiNow program, a homeowner must meet these qualifications:

• Be in a possession of a Fannie Mae-backed mortgage secured by a 1-unit, principal residence.
• Have a current income at or below 100% of the AMI (not the income as of origination of the original loan.)
• Never missed a mortgage payment in the past six months and no more than one missed mortgage payment in the past 12 months.
• Be in possession of a mortgage with a LTV ratio up to 97% and a debt-to-income ratio of 65% or less.

Through the Freddie Mac Refi Possible program, eligible borrowers with a Freddie Mac-owned single-family mortgage can benefit from a reduced interest rate and lower monthly mortgage payment, helping save an estimated $100 to $250 a month.

Qualifications for Refi Possible

In order to qualify for Freddie Mac's Refi Possible program, a homeowner must meet these qualifications:

• Be in possession of a Freddie Mac-owned mortgage secured by a one-unit single-family residence that is their primary residence.
• Have income at or below 100% of the area median income.
• Never missed payments in the past six months, and not more than one missed payment in the past 12 months.
• A LTV ratio at or below 97% and a debt payment-to-income ratio below 65%.

Federal Housing Administration (FHA) Streamline

A Federal Housing Administration (FHA) Streamline refinance is designed for homeowners who already have an FHA mortgage. Its goal is to provide a new FHA mortgage with better terms that will lower the homeowner’s monthly payment. Th🐎e process is supposed to be quick and easy, requiring no new documentation of your financial situation and no new income qualification.

This type of refinancing doesn't require a home appraisal, termite inspection, or credit report. One possible drawback for some homeowners is that an FHA streamline refinance does not allow cash out.

US Department of Veterans Affairs (VA) Streamꦆline

This program, also known as an interest rate reduction refinance loan (IRRRL), is similar to an FHA streamline refinance. You must already have a Veterans Administration (VA) loan, and the refinance must result in a lower interest rate unless you are refinancing from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. The lender may require an appraisal and a credit report, though the VA does not require these.

Notably, the VA and the Consumer Financial Protection Bureau (CFPB) issued a warning order in November 2017 that service members and veterans had been receiving several unsolicited offers with misleading information about these loans. Check with the VA befor𝐆e acting on any offer o♓f a VA IRRRL. 

With both the VA streamline and the FHA streamline (澳洲幸运5官方开奖结果体彩网:USDA rural home loans also offer a streamline), it is possible to pay few to no closing costs upfront. However, these costs will either be rolled into the mortgage, or you’ll pay a higher interest rate in exchange for not p💫aying closing costs. So while you won’t be out any cas💖h upfront, you will still pay for the refinance over the long run.

The Bottom Line

Any good refinance should benefit borrowers by lowering their monthly housing payments or shortening the term of their mortgage. Unfortunately, as with any major financial transaction, some complexities can trip up the unwary buyer and result in a bad deal. Knowing about the process will 澳洲幸运5官方开奖结果体彩网:help you find a lender and 澳洲幸运5官方开奖结果体彩网:a refinancing program that offer the best value for your situation.