We recommend that everyone do a mortgage loan review at least once or twice per year just as you go to the dentist for a checkup, visit a doctor and review insurance and legal documents. This review should involve more than just “What’s the rate?” It is too easy to think that a borrower got a great rate on the last mortgage and since rates are not significantly lower, that nothing has changed.
Check out these seven scenarios that show the potential financial health benefits of a refinance:
FHA mortgage insurance is still required for the life of the loan, but rates have come down. Reduced mortgage insurance rates typically only apply to new loans, including refinances, and not retroactively to old loans.
As the value of a home increases, it creates opportunities:
- to drop the mortgage insurance
- to lower the mortgage insurance rate
- to consolidate or lower the rate on other debts
- to shorten the loan term without increasing the payment.
We are finding borrowers with loans that are 5-15 years old who could easily qualify for better financing now. That’s because old credit issues such as late payments, loan modification, bankruptcy, or foreclosure have been resolved. Without a periodic review of their situation, they continue to pay higher rates than necessary, unfortunately.
Adults sometimes return to school for training in a new occupation. While they are in school, their student loans are in deferment. All too often, though, they are not well-informed about the rates that will be attached to the payments once they finish school. In some cases, they struggle to manage repayment terms when the deferment ends. Consolidating these loans into the mortgage may be attractive depending on the rates and terms of each loan. It’s worth exploring.
Car loans, credit cards, or other consumer debts may have very high rates. In some cases, borrowers can save enough on consumer debt interest to justify a refinance even if the mortgage rate is not reduced. This must be done with caution, though, because high-rate consumer debt can result from either a temporary non-recurring expense such as medical treatments, or excess spending. Underwriting guidelines now discourage refinance to cover overspending.
Remodeling or Major Repairs
Roof repair, new windows, basement finishing, an addition, or other major home improvement projects may be paid for with a cash-out refinance or a second mortgage. A quick comparison of loan rates and terms will show which is best.
Combination of Events
Sometimes the reason for a refinance is not just one of the above, but a combination. For instance, say you recently remodeled your basement and then had to replace your car. You have worked hard to improve your credit score over the 15 years since you took out your first mortgage. During your mortgage review, you learn that the mortgage rate has not significantly decreased, but because of your improved credit you can decrease your total loan repayment cost by consolidating your new debts.
A mortgage review can be as quick as checking current home value, rates and fees for a refinance and the terms of the current loan. We can do an estimate of the rate and fees to refinance the mortgage without a credit report or any charge to the borrower. A more complete analysis including all debts may require a credit report. We still would not charge for the analysis, but the borrower would need to pay a nominal fee for the credit report. In either case, we could analyze the borrower’s position, generally within 24 hours. Our report would show whether a refinance would benefit the borrower, who could then decide to proceed with an application or not.
Your financial health is important to us. When you are ready to schedule your mortgage’s annual checkup, let us know if we can assist you.