Common questions and answers about refinancing
What are some of the ways I can lower may monthly payment?
Refinancing with a new interest rate or loan term can be a great way to lower your monthly mortgage payments. If rates have fallen since you took out your current mortgage, refinancing now may get you a lower rate. That means your monthly payments will go down, assuming the interest rate is all that changes.
Another way to reduce your monthly payments is to lengthen the term of your loan. With your payments spread out over a longer time period, each one will be smaller. For example if you are currently in a 15 year loan and choose to refinance into a 30 year loan.
Here are a few other tips that can help lower your monthly mortgage payments without refinancing.
1. Try shopping around to see if you can find a less expensive home owners insurance policy. If so let your current lender know of the change so less can be withheld each month for your impound account.
2. Confirm the Home Owners Exemption is in place if the property is your primary residence. This can make a huge difference in the amount of property taxes you pay each year. It’s surprising how many people have either never heard of this or don’t have their form in place. For more information visit the County of Maui website. If you live on neighboring islands you may want to go to that website instead.
Are you facing a potential rate increase on your adjustable-rate mortgage? If so, here’s what you can do to help avoid higher payments.
If you plan to stay in your home for the long term and don’t want to worry about rising interest rates, it may be a good idea to replace your ARM with a fixed-rate mortgage. With an interest rate that never changes, a fixed-rate loan gives you predictable payments throughout the loan term.
If you plan to move within the next several years, you may want to consider replacing your current ARM with a new one. In most cases an ARM will start off with a lower interest rate than what you’d get on a fixed-rate loan. Depending on how long you intend to stay in your home, you can choose an ARM that isn’t scheduled to adjust until after you plan to move. The most common ARM programs today are 3, 5, 7, and 10 year programs.
So what are some of the options I have for a refinance?
Here are some of the most common refinance options offered
1. ‘Rate and Term’ refinance means you only refinance the principal balance owed to get a better interest rate and/or change the term of the loan. Closing costs can usually be financed as well but you’re not allowed to pay off debt or get cash back at closing.
2. ‘Cash-Out’ refinance replaces your current mortgage with a new loan for a higher balance. Your new mortgage pays off your old one and you receive the remaining loan amount in cash. That cash comes out of the equity you’ve built in your home. You can also use this to pay off other debt such as credit cards, cars loans, and so forth.
3. ‘Home Equity Line of Credit’ or ‘HELOC’ is similar to a traditional ‘Cash-Out’ refinance in that you can pay off other existing debt and/or take out cash. The major difference is that a home equity loan doesn’t pay off your first mortgage, it gives you just the cash you need, which you repay along with your mortgage. It’s a type of second mortgage based upon equity in the property and is a line of credit which can be charged and paid back over and over again.
4. A ‘Second mortgage’ typically refers to a secured loan or mortgage that is subordinate to another loan against the same property. This is similar to a HELOC but is based on a set repayment schedule such as 5 or 10 years.