Should You Refinance Your Home? When interest rates come down, you may wonder if it would be to your advantage to refinance your existing mortgage. Amerimac has worked with thousands of homeowners to refinance their mortgages, and we would like to share with you some of the common questions we've been asked about the refinance process.
How Much Do Interest Rates Have To Fall To Make Refinancing Worth While?
How Much Can I Refinance?
Will Refinancing Cause My Property Taxes To Rise?
What Happens In The Refinance Process?
Why Do People Refinance?
How Much Does Refinancing Cost?
How Can I Save Time And Money?

How Much Do Interest Rates Have To Fall To Make Refinancing Worth My While?

The more interest rates fall, the greater the possibility that refinancing will payoff. But interest rates themselves are just one factor determining this "pay off".  Other benefits can justify refinancing even if the new interest rate is not substantially lower than the previous one.

Additional Questions to Ask are:

How long will you stay in your present home?

The longer you plan to stay in your current home, the less interest rates have to fall in order to recuperate the costs of refinancing your mortgage.                      

Can refinancing help you save money in other ways?

You may be able to tap your home equity to pay off consumer debt, such as a car loan or credit card debts. Consumer interest rates are generally higher than mortgage interest; and, as of January 1,1991, most forms of consumer interest are no longer tax deductible. Refinancing to restructure your consumer debt could reduce your overall interest expense and increase your tax deductible interest.

Can your home equity be put to better use elsewhere in your financial plans?

Many homeowners refinance to convert home equity into other types of investments such as a business venture, a retirement fund, or a college education fund. This makes sense. Mortgage interest is one of the least costly sources of borrowed funds for most homeowners, and mortgage interest is still tax deductible within certain limits.     

Can you free yourself of mortgage insurance?

Some borrowers may be required to pay for mortgage insurance on their current mortgage. The cost of this insurance is not tax deductible and this cost might be eliminated on a refinanced mortgage if sufficient equity has accrued since you bought your home.       

What are the tax implications of refinancing?

Refinancing can mean great tax benefits for some homeowners. Your tax advisor or accountant can help you evaluate these opportunities.

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How Much Can I Refinance?

Generally, about 65%–125% of the current appraised value of the property qualifies for refinancing. The exact amount will depend on a variety of factors, including the age of the original mortgage and what you plan to do with the refinanced funds. The limits tend to be stricter when you are refinancing to tap your equity in the form of cash.

The amount is also more restricted if the property being financed is not your main residence. In some cases, you may not be able to deduct the full amount of the interest payment on your new mortgage. Your tax advisor can help you analyze the impact of refinancing on your specific tax situation. Depending on your situation, you could borrow up to 90% of the appraised value of your home.

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Will Refinancing Cause My Property Taxes to Rise?

In most cases, refinancing has no impact on the property tax assessment, since title on the property remains with the same owner.

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 What Happens In the Refinance Process?

1. Mortgage Analysis: Your Amerimac Mortgage Placement Specialist will help you review your financial goals and analyze your current mortgage. He or she will then:

2. The Loan Application: You may relax, and take a deep breath of relief when it comes to paperwork. Your Amerimac Mortgage Placement Specialist will tell you what documentation you need to provide and will help you fill out your loan application form.

3. Loan Processing: The Amerimac Mortgage Placement Specialist is just one member of a team of mortgage professionals who will quickly guide your loan application through approval. During the processing of your loan:

4. Underwriting: Once all necessary information is gathered, your loan file is packaged and presented to a lender for approval. Your Amerimac Mortgage Placement Specialist not only knows the lenders with the most reasonable rates, he or she knows which lenders are more likely to approve you loan fast. If the lender requires no additional documentation, your loan is approved and documents are prepared to be sent to the title company.

5. Closing: Then, you sign the documents. Federal law requires a three day "Right of Recision" before the lender can write a check for you. But once the check is delivered to the escrow company, your escrow officer will record the transaction at the County Recorder's office and the process is complete.

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Why Do People Refinance?

A. People refinance for many reasons. Improving cash flow, taking advantage of tax benefits, debt consolidation, and tapping home equity for cash are just some of the reasons to refinance your home. In our experience, here are the most common:

To lower monthly payments.

Refinancing can lower payments by helping you to do one or more of the following:

1.      Reduce your interest rate. By refinancing into a mortgage with a lower interest rate, you can lower your monthly payments. When interest rates on "fixed" mortgages are down substantially, it may make sense for you to convert out of an older fixed rate mortgage. In addition, many homeowners originally financed their home purchase with an Adjustable Rate Mortgage (ARM) in order to take advantage of lower initial interest rates. As these adjustable rate mortgages mature, their interest rates rise. Once interest rates on older ARM loans have adjusted up, they may be higher than prevailing rates on either fixed or new ARMS.

2.      Decrease principal payment. If you currently owe significantly less than the amount of your original mortgage, you may be able to refinance into a mortgage with lower monthly payments. A reduction in your monthly mortgage payments could free up cash flow for other investments.

3.      Eliminate Private Mortgage Insurance premiums. I you have built up equity in your home, you may not be required to carry mortgage insurance on a refinanced mortgage, lowering your monthly payments.

To trade the uncertainty of an Adjustable Rate Mortgage (ARM) for the security of a Fixed Rate Mortgage.

In addition to potential interest rate savings, many homeowners refinance from an ARM to a fixed rate mortgage because they prefer the security of a predictable fixed mortgage payment.

To pay off or consolidate consumer debt.

Tax reform in the 1980's reduced and even eliminated the tax deductibility of many forms of consumer interest, including interest paid on credit cards and car loans. Many homeowners are refinancing to top a portion of their home equity to pay off debts such as credit card bills and car loans. In these cases, the interest paid on the new mortgage may be tax deductible while the interest on the old debts may not have been. Also, the mortgage interest may be substantially lower that the interest rate on consumer debt.

To finance home improvements or other investments.

Homeowners are also tapping into their home equity to fund home improvements such as a room addition or kitchen remodel. Some homeowners redirect equity from their home to assist adult children in purchasing property, to pay for a child's education, or to fund a business venture or retirement plan.

To build Equity more quickly.

Some homeowners refinance to convert to a loan that builds equity more quickly than their present loan. There are several ways to do this, the most common are shown below:

1.      Convert to a bi-weekly payment plan. A 30-year mortgage with a bi-weekly payment plan allows you to pay off your mortgage in less than 18 years. The benefit of low payments associated with the 30 year term loan are maintained.

2.      Convert to a 15-year term. Refinancing from a 30-year term to a 15-year term increases your principal payment, so you build up equity more quickly. Another important advantage of a 15-year loan is that the interest rate is typically 0.25 percent to 0.375 percent lower that rates on 30-year loans.

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 How Much Does Refinancing Cost?

Refinancing costs are similar to those you incurred at the time you originally financed your home. The cost of the new loan generally runs about 1.5 percent to 4 percent of the new loan amount. The final cost is determined largely by the type of loan you obtain and the interest rate you select.

The major costs will be broken down for you by your Amerimac Mortgage Placement Specialist before you make your loan commitment, so your loan decision can be fully informed. You should keep in mind that in most cases, the cost involved with a new loan can be financed by including them in the new loan amount. This increases the loan amount (principal) but reduces your out-of pocket expenses required for the refinance.

In many cases we can reduce your interest rate with no out of pocket expenses and no increase in your principal balance.

In addition to any non-recurring closing cost, you will have to make your last payment on your existing loan, and your first partial payment on your new loan. These, along with current property taxes and the required amount of hazard insurance, are ongoing costs of home ownership, and are not an additional cost resulting from the refinance process.

In some cases, you may incur additional costs related to paying off your original mortgage, such as a prepayment penalty. The specifics on these costs are outlined in the loan documents you signed when you obtained the existing loan.

Closing costs for a $100,000 refinance will run between $40–$4000, depending mostly on the type of loan you choose.

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How Can I Save Time And Money?

Careful evaluation of your refinance options with an Amerimac Mortgage Placement Specialist can save you thousands of dollars over the lifetime of your mortgage. Working with Amerimac can cut weeks from the refinance process and save you the hassle of shopping for the best loans.  By acting right now, you can take advantage of the interest rate opportunities currently available—if you wait, these opportunities could quickly pass you by. So...

Save time and money, call Amerimac toll-free at  877-238-7444 today!

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