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Path
Refinancing
The
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Path
Refinancing
The
Over time, many things change and need adjustment, and the reality is your home nancing
is no dierent. Regardless of whether you took your current home loan out 20 years ago, 10
years ago, ve years ago, or even last year, your nancial situation and the economic climate
may be vastly dierent than it was even a short time ago. For this very reason, it’s a good idea
to review your home nancing and determine if your current loan still makes sense given your
current nancial situation and needs.
Given today’s low rate environment and the wide range of renancing options available to
borrowers, now is an excellent time to reevaluate your present mortgage. You may nd a
tremendous opportunity to save a signicant amount of money. To help make that determi-
nation, you’ll need to understand the steps of the renance process and gure out if it’s the
right move for you at this time.
Renancing Steps
1. Understanding Renancing
2. Knowing Your Goals
3. Preparing Properly
4. Examining Your Options
5. Working with an Expert
6. Getting Through Closing
7. Managing Your Mortgage
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When you engage in a renance of your
mortgage loan you are agreeing to replace
your existing loan with a new one. This
means new terms, rates, and payments.
Typically those terms and rates should be
favorable to you, saving you money and
justifying the renance process.
One of the rst items you’ll want to review
are the terms of your current mortgage.
You should have an understanding of
what you are paying each month, your
current interest rate, how long you have
had your current mortgage loan, how
much you will pay over the life of the loan,
and if any pre-payment penalties apply.
This information will help you make a fair
comparison against new rate quotes and
programs that are being oered today and
will clearly show if it makes sound nancial
sense for you to consider renancing.
For example, here’s a basic look at what the
dierence between paying a 6% interest
rate and a 3% interest rate could mean to
you on a 30-year loan of $300,000:
Understanding Renancing
1
CURRENT LOAN PROPOSED NEW LOAN
Loan Amount $300,000 $300,000
Loan Term 30 years 30 years
Interest Rate 6% 3%
Payment 1798.65 1264.81
Savings Per Month 533.84
Total Payments $647,514 $455,331.60
Total Savings 192,182,40
Of course there are many other factors
you’ll need to take into consideration. You’ll
want to determine the amount of equity
you have in your home, as that will help
narrow down what type of renance loan
you may qualify for, and if you’ll need to pay
mortgage insurance. You may be required
to get an appraisal, which is simply a pro-
fessional estimate of your home’s current
worth. Understanding your home’s value
today is critical in helping to determine the
best nancing options available to you.
As with any mortgage loan, a renance
will also require completing paperwork,
including a loan application that will help
determine your eligibility. Depending
on the type of product you choose, your
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loan approval will be based on a variety of
personal nancial factors. The good news
is that there are a variety of programs
available to meet the needs of dierent
types of borrowers and situations, including
traditional renances, (where credit
scores, current debt and loan amounts
will weigh greatly on approvals), as well as
government programs designed to help
homeowners that may not have ideal credit.
Under the Making Homes Aordable Act,
there are even several programs that can
assist those underwater on their mortgage.
Also keep in mind that you will be required
to pay closing costs on your new loan, which
vary depending on your lender and location.
You will need to have a good understanding
of what these costs will be and factor them
in when determining if a renance is right for
you. You should examine your break-even
point as well, which will clearly show you
the amount of time it will take you to recoup
the closing costs that you will incur with a
renance. For a clearer picture of this, let’s
look at an example:
You have decided to renance and will be
paying closing costs of $5000. The new loan
will save $200 a month. The breakdown
below shows you that it would take just
over two years (25 months to be exact) to
recoup your closing costs.
Total Closings costs:
$5000
Amount saved per month:
$200
Amount saved per year:
$200 x 12 months= $2400 per year
Amount saved in two years:
$ 200 x 48 months= $4800 in two years
Amount saved in 25 months to full
recover closing costs:
$5000 in 25 months
Depending on the length of time you plan
to stay in your home this may or may not
make sense.
One nal consideration to evaluate is tax
implications. You should examine the tax
deduction you’ll receive with the new
loan versus the old. Are the deductions
larger or smaller and how signicant are
the dierences? The ability to write o
mortgage interest is a signicant deduction
for many households and you’ll want
to ensure you are not losing money by
renancing your loan. It’s best to consult
with your tax advisor to review this before
making a move.
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Knowing Your Goals
2
There are many reasons you may want to
consider a renance and you should be clear
on your goals before you begin the process.
Be sure to share what you’d like to achieve
through renancing with your mortgage
professional so they can help guide you
toward the best product to t your current
needs. Below are just some of the key reasons
homeowners typically opt to renance.
• Take advantage of lower interest rates.
Long term interest rates are close to
record lows, and the reality is that we
may never see them this low again. If
you are able to renance now before
rates begin to climb you may not only
lower your monthly payment but you
could see tremendous savings over
the life of your loan.
• Tap into the equity in your home to pull
cash out.
If you have a good deal of equity
in your home, there may be an
opportunity for you to renance and
use some of that equity for other
purposes. This may be a good option
if you need to use the money to pay
down high interest rate credit cards or
personal loans. You may even want to
opt for a cash-out renance to help pay
for college tuition or even fund a new
business. Tapping one’s home equity is
not without risk, and you will denitely
want to consult your mortgage profes-
sional before doing so.
• Move out of an Adjustable Rate Mortgage.
Perhaps you are currently in an
Adjustable Rate Mortgage (ARM) that
is set to adjust very soon. Your rate may
Housing Facts
• The median distance from the previous
residence was 12 miles
• To nd their home, 88% use the Internet,
87% use real estate agents, 55% yard signs,
45% attend open houses and 30% review
print or newspaper ads.
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be set to adjust much higher than the
rate you could lock in today. Converting
to another type of loan could help
prevent you from seeing a large spike
in your monthly payment. You may also
simply choose to move to a more stable
xed-rate mortgage product.
• Shorten or lengthen the period of your
mortgage loan to better meet your
nancial situation.
If you are in a position to do so, you
may want to shorten the length of
your loan and move into a 15- or
20-year to help pay your mortgage o
sooner and save money over the life of
the loan. On the ip side, if your income
has recently decreased you may want
to consider a longer term, which can
help to keep payments lower and more
manageable each month.
• Move from two mortgage loans to one.
Perhaps you had a piggyback loan
on your original mortgage and are
currently paying two separate loans.
If that’s the case and you have one or
both loans with high interest rates,
you may be able to renance into one
loan at a substantial savings.
• Take advantage of HARP if you have a
Fannie Mae or Freddie Mac owned loan.
This program allows you to take
advantage of today’s market and
reduce your monthly payments
regardless of whether or not you are
underwater on your mortgage. This
program also has a much greater level
of exibility to qualify.
• Move out of a loan that requires Private
Mortgage Insurance (PMI).
If you purchased your home with
a conventional home loan and
put down less than 20% you were
required to pay PMI which helps
protect your lender against default
on your loan. In order to remove this
insurance you can have your house
appraised to show that you have
reached 20% equity in your home but
the problem is that in most cases you
must pay PMI for a certain period of
time. Another way to remove the PMI
payment is by renancing. If the value
of your home has increased and you
have greater than 20% equity in your
home when you renance, you won’t
be required to pay PMI which could
mean even more savings.
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Knowing Your Goals
3
Just as you did when you rst applied for
your mortgage, you’ll want to ensure that
you are well prepared for what will be
needed to complete your renance. You’ll
need to do some of your own research to
determine if in fact a renance is the right
move for you and your current nancial
situation. There are several items you’ll want
to make sure you have covered:
• Check your current mortgage.
You simply should not pursue a
renance without a complete under-
standing of your current mortgage.
You will need to determine if you
would be saving enough money to
warrant pursuing a renance. For
instance if you plan to move in the
next year or two, it probably would
not make sense. Also, if you will face a
pre-payment penalty on your current
mortgage and are just a few years into
the loan you’ll want to understand
that penalty and factor that into your
decision to proceed.
• Review your credit report.
You will absolutely need to ensure
there are no errors or issues on your
credit report. With lending require-
ments tighter than they were in the
past, you won’t want to hold up your
loan as you try and get something
squared away that could have been
resolved before submitting your
application. Visit www.annualcred-
itrpoert.com for a free copy of your
credit report. If you do nd any errors
or issues, address them immediately
and then move forward with your
application. Although programs exist
today for a variety of borrowers, the
better your credit score the more
options you’ll have available to you.
Renance Checklist
• Check your current mortgage
• Review your credit score
• Take a look at outstanding debt
• Have funds to cover closing costs
• Contact lenders and compare
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• Take a look at your current
outstanding debt.
Take a look at all of your outstanding
debt. In many cases lenders will
review your debt to income ratio to
determine if it is too high. This may
impact your ability to qualify for
certain products and some of the best
rates. Lenders will typically review
both your front-end ratio, which is the
dierence between your income and
the mortgage loan you are applying
for and the back-end ratio which
is the ratio between your monthly
income of all your debt , including
your mortgage loan. Typically lenders
like to see your front end ratio under
30% and the back end ratio, which
is typically more closely looked at,
lower than 40%. Keep in mind though
under the federal Home Aordable
Renancing Program some of these
requirements have been eased.
• Verify you have funds to cover
closing costs.
Your closing costs will vary depending
on the fees you are being charged by
the bank, lender or broker you work
with. You should be aware of these
costs up front. Keep in mind, you’ll
also want to review how long it will
take you to recoup your closing costs
through your monthly savings and
factor that into your determination
to renance. After all, if it will take
you a few years to recoup the closing
costs you’ll need to pay and if you are
considering a move in the next ve
years, it may not be the best decision
to renance at this time. However, if
you will recoup your closing costs in
two years and you plan to stay in the
home for at least a decade or longer,
then the cost savings over that period
of time will be signicant and more
than likely would be a good move.
• Contact lenders and compare.
Just as you would for any large
purchase, it’s always a good idea to
shop around and compare. Even if
you are working with a particular
mortgage professional that you have
worked with in the past, call some
additional lenders and feel condent
that you are getting the best rate,
service, and product you possibly
can. You can contact us here at Total
Mortgage Services and we can assist
with any questions you may have
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and put you in contact with a loan
ocer in your area. We can work with
you to evaluate your current nancial
situation and make recommendations
specic to your needs.
Just be sure to watch out for and steer
clear of anyone that mentions additional
fees but does not clarify what they are
for. Also be aware of any hidden costs
that may be rolled into your loan. Always
be sure you completely understand
the quotes you are getting. If you have
questions, don’t be afraid to ask for clear
explanations.
Examining Your Options
4
As you begin to explore your product
options, think about what you are looking
for in a loan. Do you prefer the stability of
a xed rate mortgage? Are you concerned
about a low credit score and qualifying for
a conventional loan? Do you plan to move
in the next ve to ten years? Are you late on
your payments or owing a great deal more
than your home is actually worth? Consider
your specic nancial situation and needs
when evaluating the dierent types of
available products. Here’s a closer look at
just some of the programs you’ll nd when
you look to renance.
Fixed rate options:
As the name implies, a xed-rate mortgage
product is one where the interest rate is
stable throughout the life of the loan. These
loans are among the most popular and are
typically oered in 30-year, 20-year and
15-year options. Some xed –rate programs
also allow a cash-out option so you can pull
equity out of your home. There are a number
of benets to each of these programs.
• A 30-year option may be ideal if you
plan to stay in your home for a long
period of time, prefer the stability of
a xed rate and have a good credit
score and enough equity in your
home to avoid PMI. Your payments
may be lower as you are stretching
out the costs over a long period of
time. The downside of this is that
you will end up paying more interest
on the loan as it stretches out over
30-years.
• A 20-year xed-rate option oers
similar benets to a 30-year but for a
shorter period of time. Typically you’ll
see a better interest rate on a 20-year
as well and will have the ability to pay
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your loan o sooner, cutting down
on the amount of interest you’ll pay
over the life of the loan. Of course
since you are paying this loan o in
20-years you will see slightly higher
monthly payments than you would
with a 30-year option.
• A 15-year xed-rate option will
allow you to pay your loan o in the
shortest period of time saving you a
substantial amount on interest over
the course of the loan. You may also
be able to secure the best rate for a
15-year loan and you will build equity
much more quickly, however, your
payments will be much higher since
you are opting to pay your loan o in
a shorter period of time.
• You may nd some lenders also oer
ten-year xed options and variations
of the above programs where you
pay the interest upfront on your
mortgage loan for a xed period
of time and then the principal over
the remaining life of the loan. These
loans are known as interest-only
options. While not for everyone, they
may better meet your needs if you
expect your income to increase, are
looking for low monthly payments,
and don’t plan to be in your home
for a long period of time. For
example, a 30-year interest-only
xed-rate allows you to only pay
interest upfront for the rst ten
years. After that initial ten-year
period is up you will then need to pay
down the principal in just 20 years.
IF you plan to move in less than ten
years, you’d never even start paying
the principal. You should be clear
that you understand the advantages
and disadvantages of these types of
loans as they dier a great deal from
a traditional xed-rate loan.
• An adjustable rate mortgage,
referred to as an ARM, oers a low
starter rate for a xed period of time.
Once that period of time expires, the
ARM will readjust to a fully indexed
rate, which could be much higher
than your start rate. This could mean
your payments would increase at
that time. These renance loans are
typically oered in a 30-year terms
and oer initial low, xed starter rates
for 5, 7 or 10 years.
There are clear advantages to an ARM
for some types of borrowers. First, the
introductory rates are typically lower
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than those for xed-rate options. So,
your initial payments may be lower.
This type of loan is also ideal for a
borrower that may only plan to be
in a home for a short time and plans
to leave before the ARM adjusts to
a higher rate. ARMs are also a good
option if you expect your income
to rise over time and want lower
payments to begin paying back your
loan. Keep in mind, there are inherent
risks with these types of loans.
Although you may plan to move
before the ARM adjusts your plans
may change or you may not be able
to sell your home in the timeframe
you imagined. Interest rates may rise
dramatically, impacting the rate your
ARM adjusts to and you could see
a tremendous spike in your actual
payment. You also may not see the
increase in salary that you thought
you might, which could make it
more dicult to keep up with higher
payments once your ARM adjusts.
Government options:
There are quite a few government
programs you may want to look into when
renancing. Some of these programs have
less strict qualications and are designed
to help the borrowers successfully manage
their mortgage.
• FHA
There are numerous renance
programs available through the
FHA (Federal Housing Administra-
tion) from xed rates to streamlined
programs designed specically for
those holding a current FHA loan.
Even if you hold a conventional
mortgage an FHA renance may
make sense as they typically have
less stringent qualications.
• Fixed options
Similar to conventional xed-rate
options, you can obtain an FHA xed
rate loan in a 30-year or 15-year
option. The same benets would
apply as a conventional xed-rate—
the stability of a consistent rate over
the course of a loan. Also, credit
requirements may be less stringent if
you are concerned about qualifying
Consider your specic nancial situation
and needs when evaluating the dierent
types of available products.
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under conventional guidelines.
The downside may be that FHA
does require mortgage insurance
if you do not have greater than
20% equity in your home so you’ll
need to factor that into your total
monthly payments and you will need
to go through the complete loan
application process if you are moving
from a conventional to an FHA.
• Streamline Renance
The FHA Streamline Renance may
be an excellent option if you have a
current FHA loan in good standing
and are looking for a quick renance
program that can lower your interest
rate ad payment without the need for
an appraisal. This program typically has
much less stringent guidelines as it’s
only open to those that have already
been approved and gone through
the FHA qualication process when
obtaining their original home loan.
However, there is no cash–out option
with the FHA streamline program.
• V A
If you currently hold a VA Loan or are
eligible to move to one, there are also
several available renance options
• Cash-out VA renance
This program is designed to help you
tap into the equity in your home.
Perhaps your property has increased
in value since your purchase and
you’d like to take some of the equity
to help pay o other bills. This loan
will allow you to access up to 90% of
your home’s current value.
• Rate-Term Renance
A rate-term renance is for an eligible
borrower that may be currently in
a conventional or ARM that wishes
to move to a VA loan. This program
oers the ability to nance up to
100% of the property’s value and
never requires mortgage insurance.
This is a xed- rate loan and provides
the same level of stability as other
xed- rate products. This can
ultimately help a borrower save on
monthly payments while incurring
very minimal out-of pocket expenses.
• Interest Rate Reduction Renance
Loan (IRRRL)
This is a streamlined program for
those borrowers currently in a VA
loan. It is designed to help lower
interest rates, change the overall
terms of the loan such as moving
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from an ARM to a xed-rate. There
are typically no out-of-pocket
expenses and no appraisals are
required. Another great benet of
this program is that documenta-
tion requirements are eased and
processing is usually quick.
Home Aordable Renance
Program (HARP)
As part of the Making Homes Aordable
Program, borrowers that hold a Fannie Mae
or Freddie Mac home loan that are unable
to renance under conventional methods
or are underwater on their mortgage can
take advantage of the HARP program. This
program has number of requirements so
you should be sure to check with your
lender, however overall it is designed to
help borrowers renance to obtain lower
interest rates and reduce their payments.
If you are unsure if your loan is currently
held by Fannie Mae or Freddie Mac, you can
check here.
These are just some of the many programs
available to you. It’s best to contact a loan
ocer to review your personal situation
and explore the best product to meet your
particular needs.
Housing Facts
• Commuting costs continue to factor
strongly in decisions regarding location,
with 73% of buyers saying transportation
costs were important.
• Home buyers think the most important
services agents provide are helping nd
the right house, and negotiating price and
sales terms.
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Working With an Expert
5
As you begin to determine that a renance
makes sense and you start to narrow down
the products that best t your needs, you’ll
want to begin working with a lender and
more specically with a loan ocer that you
can trust. As a renance loan is a signicant
nancial decision, you should seek an
experienced, licensed loan ocer who can
help you make the best decision for your
individual needs. You should have a level
of comfort with your loan ocer as well as
the lending institution they represent. Your
loan ocer must have the ability to provide
sound advice and successfully guide you
down the renancing path.
If you’ve worked with someone in the
past you may want to start there. If it’s
been some time since you worked with a
loan ocer, ask around for referrals from
friends and family. Our mortgage lending
professionals here at Total Mortgage
Services are always available to assist with
your needs as well. Our loan ocers are
licensed, experienced, and looking to build
long-term relationships with each of their
clients. They have worked with borrowers
with a wide range of nancial situations and
are extremely knowledgeable regarding
the variety of renance programs available
today. You can feel condent they will be
able to guide you down the right path.
Still, don’t hesitate to contact several
dierent loan ocers and interview them
for the job. This is one of the biggest
nancial decisions of a lifetime for most
people, and you want the best. Don’t settle
for someone you are not comfortable with.
Here are some questions you may want
to consider when speaking with a lending
professional.
• Are you licensed?
Mortgage loan ocers in all
states must be licensed. You may
verify licensing at the consumer
Nationwide Mortgage Licensing
System (NMLS) site at http://www.
nmlsconsumeraccess.org.
• How long have you been in business
Given the complexities of today’s
home nancing requirements and
the myriad of programs available,
your best bet is to look for someone
well versed in dealing with a variety
of nancial situations.
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• Do you have a former client
I may contact?
Reach out to former clients the loan
ocer has worked with and ask them
how they liked working with that
particular individual. What were their
strengths and weaknesses? No one
is perfect but you’ll want to start out
on the right foot and know you are
working with someone that comes
highly recommended.
• Do you have referral partners that
may be able to help me with other
aspects of my nancing (real estate
attorney, accountant, etc.)?
An experienced loan ocer should
have a number of local profession-
al referral partners they work with
and recommend. This will assist
you in the process of renancing
your loan should you need a real
estate attorney or accountant to ask
questions or assist with the process.
• Why should I choose to work
with you?
Although this may seem general, it’s
a great question to really understand
why a particular individual wants
your business. Are they just looking
to close a quick renance, collect
their commission and move on,
or are they more focused in on
expanding their customer base,
building a relationship and working
with you for the long haul? Do they
talk about guiding you through your
mortgage renance now and also
helping you in the future? Do you
believe they want to earn your trust
and business for a lifetime? That’s
the kind of loan ocer you’ll want to
work with.
• What is your availability like?
Make sure you clearly understand
your loan ocer’s availability from the
get go. If they work afternoons and
evenings and your free time is only in
the morning, it may not be the best t.
Understanding these hurdles early on
will save you time and headaches later
on in the process.
• How would you describe your level
of service?
Get an overall feel for how they
view their own level of customer
service. As they answer this question
you should be able to tell just how
important keeping their customers
happy really is to them. Do you get
the impression they’ll work above
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and beyond for you? You should.
• How frequently will you update me
throughout the renance process?
Gain an understanding on how
frequently the loan ocer plans to
update you on your renance. You’ll
want to make sure their responses
are clearly aligned with your desire
for updates. You’ll also want to cover
your preferred method of contact
and ensure your loan ocer can relay
messages to you in the manner you’d
like. It’s not uncommon these days
to nd customers preferring texts or
emails over phone calls.
You may recall what closing day was like
with your original home loan and with a
renance it may not be very dierent. In
some cases, you will meet at the closing
agent or attorney’s oce, however this may
vary. In other cases your attorney will work
with the closing agent to arrange signing
of all documentation without a formal
meeting. Regardless of the location of your
closing, the process will remain the same.
You will be required to:
Getting Through Closing
6
• Carefully review and sign all
loan documents.
You should make sure all documents
you are signing reect exactly the
loan terms, payments and information
you previously discussed with your
loan ocer. If something is not correct
you should not sign and bring it to
your attorney’s attention immediately.
• Provide a certied or cashier’s
check to cover all closing costs.
You will need to obtain a certied or
cashier’s check; this cannot typically
be a personal check.
• Set up an escrow account, as
applicable, if you will be paying
your homeowner’s insurance and
taxes with your mortgage payment.
Your attorney should handle this
for you.
• Provide proof of homeowner’s
insurance
If something is not correct you should
not sign and bring it to your attorney’s
attention immediately.
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At the closing you will also receive copies of
and will need to sign the following:
• HUD-1 Settlement Statement
This is a line-by-line itemization of
your total closing costs.
• Deed of Trust or Mortgage
This documentation details the lien
on your property as security if you
should default on the loan.
• The Promissory Note
This is a document declaring your
agreement to all of the terms of
the loan, including your promise to
pay your mortgage payments on
time, in full and to the proper party
throughout the life of the loan.
Your attorney should guide you through
this process on closing day and explain each
and every document you are signing. Be
sure to address any questions or anything
you don’t understand immediately.
Path
Refinancing
The
That’s it! You have completed the TotalPath
to Renancing. You have a made an
important step on another path—the one
that leads to the American Dream!
Managing Your Mortgage
7
Once your renance has been completed
and you have closed the loan, periodically
check in with your loan ocer. It’s usually
best to plan a yearly mortgage review.
This is a good opportunity to verify that
the mortgage you are currently in remains
the right t for your particular nancial
needs. Just as a renance may have been
right for you now, in the future your needs
may change and you may nd your goals
have changed as well. Perhaps you’ll need
to tap into some equity in your home and
renance again or you’ll decide to move
and will need to shop for a new mortgage.
Regardless of the situation, reviewing your
mortgage and how it ts your current
nancial situation makes smart nancial
sense and should be a commitment you
make sure to keep each year.
