Refinance Programs and Requirements

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Refinance Programs and Requirements

Refinance Basics: Refinancing a home mortgage is when you get a new…

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Refinance Basics:

Refinancing a home mortgage is when you get a new home loan to replace an existing home loan. Broadly, there are two types of refis: (1) a rate and term refinance where you’re getting a different interest rate and/or changing the mortgage terms (2) a cash-out refinance where you’re refinancing to take cash out. Clearly there are different goals borrowers have in mind, as well as, qualifications to meet when deciding between these two types of refis. The next few sections will go through all that.
Sidenote: refinancing shouldn’t be as emotionally charged as getting out of a bad relationship…if you use the right lender ?

Reasons for Refinancing

  • Monthly savings: this one is pretty straightforward…but if not, we have a list of wonderful financial planners who can help.
    • Get a lower interest rate which usually means a lower monthly payment
    • Stop paying for private mortgage insurance (PMI)
  • Get better terms: “better” being dependent on what is important to the homeowner, but examples are:
    • Get a shorter term, so you will own your home sooner.
    • Switch from an adjustable-rate mortgage to a fixed-rate loan (or vice versa in some cases)
  • Cash out: Trade some of that home equity for cold hard cash. This is what separates a cash-out refinance from a rate/term refinance.

Rate-and-Term Refinancing

With a rate/term refinance (the most straightforward refi), no actual money changes hands, besides the fees associated with the loan. The total loan amount of the mortgage is the same and you just trade your current terms for newer (hopefully better) terms. The benefit of refinancing a mortgage is often understood through calculating the breakeven point, which is the point in time where the totaled monthly savings from a refinance equals the various upfront costs of refinancing. Calculating this isn’t always as straightforward as it seems so get with a mortgage pro (or your high school algebra teacher) to make sure you’re making the best decision.

Cash-out Refinancing

In a cash-out refinance, the new mortgage is larger than the previous. With the new loan terms, you’re also being advanced money – essentially taking equity out of your home. It’s not exciting as “cashing out” is depicted in hip hop videos, BUT you can use the cash for any purpose so feel free to splurge. However, we’d still suggest maaaaybe speaking with one the many wonderful financial planners on our roster before getting too carried away.

Also, to be eligible for a cash-out refi, you must have sufficient equity so contact us if you want to evaluate where you stand.

Also check out common questions other borrowers have when refinancing. Hope this info helps and don’t forget, we’re here if you have any more questions.

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