Spring Into a Mortgage
Fact vs fiction: The truth about refinancing your home
As confusing as buying a home can seem, refinancing your abode might sound even more intimidating. But it doesn't have to be. AmCap Mortgage has made it its goal to demystify the refi process and reveal the money you can save with only a few simple steps and the help of a knowledgeable loan officer.
Below are a few common myths about refinancing. Let AmCap help set you straight.
Myth No. 1
The refinance process is just as complicated and lengthy as the initial homebuying process.
Truth No. 1
You have already demonstrated that you are a responsible homeowner, and by partnering with a knowledgeable loan officer the refinance process can be much simpler. Although refinancing is a similar process, gathering the required documentation is always easier the second time around.
Myth No. 2
There is a significant amount of out-of-pocket cash necessary to refinance.
Truth No. 2
Refinancing transactions have roughly the same costs and fees as purchase transactions, including lender and title fees, escrow setup costs, and miscellaneous fees such as government recording fees. However, if someone uses the Cash-Out Refinancing transaction type, the settlement costs are paid as part of the new mortgage, so there is very little out-of-pocket cost. An experienced loan officer can help find the best option for you to minimize your costs.
Myth No. 3
There is only one type of refinance for your house.
Truth No. 3
To the contrary, refinancing your home is not a one-size-fits-all project, which is why it always helps to work with a qualified, experienced loan originator. There are actually two types of refinance transaction: Rate & Term and Cash-Out.
Rate & Term is where the borrower pays off an existing mortgage under favorable terms such as a reduction in interest rate, a shortened or lengthened amortization term, or to reduce and eliminate the need for annual mortgage insurance. By definition, the borrower cannot receive any cash proceeds from the transaction, meaning that the Rate & Term refinance option allows the borrower to either pay the settlement costs out of pocket or roll the settlement costs into the new loan (assuming there is enough equity in the property to do so). Some programs offer what’s referred to as Streamline Rate & Term refinance options, where the amount of required documentation from the borrower is significantly reduced.
Cash-Out Refinancing is where a borrower pays off an existing mortgage with a new mortgage greater than the balance of the existing mortgage. The borrower then receives the difference as cash proceeds from the transaction. With Cash-Out refinance transactions, the settlement costs are paid as part of the new mortgage, and as such, these transactions close with little or no investment from you.
Myth No. 4
It only makes sense to refinance at the very beginning of the year.
Truth No. 4
It is always best to check with a professional to see if refinancing makes sense, regardless of what time of year it is. It might be the perfect time or you may be able to make a plan for the near future and collect all your needed documentation and be ready to roll when the time is right.
Since most mortgage loans require borrowers to escrow for their property taxes and homeowners insurance, most refinance transactions take place within the first four months of the year. With refinance transactions, new escrow accounts are created to replace the old escrow accounts with the current mortgage.
As with any process that presents multiple options, it is important to carefully consider the pros and cons of each before making a final decision. An experienced loan officer, backed by a strong company, can help guide you painlessly through the entire experience from start to finish.