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Frequently Asked Questions

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How are closing costs for a refinance mortgage calculated?

Closing Costs are fees charged by the lender and third-party service providers to legally document, secure and financially close on your mortgage - paying them is the last step before your mortgage is officially refinanced. After you apply for a mortgage, you will receive a Good Faith Estimate (GFE) from your lender which will provide a rough estimate of your closing costs. These closing costs should be less than when you initially purchased your house as some services, fees and taxes are not required for a refinance transaction.

How do I roll my closing costs?

When you refinance your mortgage, you will likely face substantial closing costs associated with obtaining the mortgage from your lender. Generally, you would be expected to satisfy these costs with a cash payment. However, if your new mortgage falls within acceptable LTV limits as described further below, you can choose to add these closing costs to the principal amount of your mortgage and make no cash payments at the close of your refinance. This will result in a higher monthly payment than if you did not roll your closing costs and may make refinancing less attractive, depending on the specifics of your mortgage.

How do I take cash out?

If you have enough equity in your house, you can decide to receive some of this equity as a cash payment to you when you close on your refinance transaction. This is accomplished by increasing your mortgage balance, so taking cash out will necessitate a higher monthly payment than if you did not take cash out, and may make refinancing less attractive, depending on the specifics of your mortgage. Your ability to take cash out will be constrained by LTV limits, as described further below.

What types of mortgages can I refinance?

Any type of mortgage (Fixed, ARM, FHA, Conforming, VA, Jumbo) can be refinanced as long as you fall within the respective LTV limits.

What types of mortgage can I refinance into?

You can refinance into any type of mortgage, provided that you fall within the LTV limits. However, most people choose to refinance into a Fixed rate mortgage as this can often guarantee a lower payment for the life of the mortgage.

Will I have to pay mortgage insurance?

Any mortgage (purchase or refinance) will be subject to mortgage insurance if the LTV is greater than 80%. Once your LTV drops below 80%, you will automatically stop paying mortgage insurance. In addition, if you refinance with an FHA mortgage, you will have to pay an Up-Front Mortgage Insurance Premium of 1.75%.

How do you determine if it makes sense to refinance?

The SmartAsset Refinance Calculator helps you determine whether or not it makes sense to refinance your current mortgage based on a number of factors. The calculator analyzes your current mortgage as well as your new refinance mortgage and builds a complete financial model of each situation. To determine if refinancing makes sense, the calculator compares your projected net wealth for each model. These models take into account all aspects of refinancing including: mortgage term, interest rate, mortgage insurance, tax implications of points and mortgage insurance, closing costs and cash-out amounts among other factors.

How do you figure out my mortgage balance?

Based on your interest rate, starting mortgage amount and time since you took the mortgage out, we are able to construct an amortization table and deliver an estimate of your current balance.

Should I refinance into a longer term mortgage?

In general, getting a longer mortgage will lower your monthly payment as your principal amortization is spread over a longer period of time. While this may make refinancing appear more attractive due to the lower monthly payments, be aware that this strategy has the potential of dramatically increasing the amount of interest that you will pay over the life of the mortgage. Most people choose to keep their refinance mortgage the same duration as their existing mortgage.

Should I refinance into a shorter term mortgage?

In general, getting a shorter mortgage will increase your monthly payment as your principal amortization is spread over a shorter period of time. If the interest rate on your refinance mortgage is significantly lower than your current interest rate, you may still be able to lower your monthly payment with a shorter mortgage. The advantage of this strategy is that you will pay less interest over the life of the mortgage and pay off your mortgage faster.

What are the LTV limits?

Lenders will typically impose loan-to-value (LTV) limitations on your ability to refinance. The LTV ratio compares the outstanding amount of your mortgage loan to the current estimated value of your house. These limits are generally set by government agencies or government sponsored agencies that purchase mortgages. If your LTV exceeds these limits, you will generally not be able to refinance unless you qualify for HARP or FHA Streamline Refinancing

  • FHA LTV limits:
    • No cash-out: 97.75%
    • Cash-out: 85%
  • Conforming LTV limits:
    • No Cash-Out (Good or excellent credit): 95%
    • No Cash-Out (fair credit): 90%
    • Cash-out (Good or excellent credit): 85%
  • Jumbo Conforming LTV limits:
    • No Cash-Out (Good or excellent credit): 90%
    • No Cash-Out (fair credit): 80%
    • Cash-out (Good or excellent credit): 60%
  • VA LTV limits:
    • No Cash-out: 100%
    • Cash-out: 90%
  • Jumbo LTV limits:
    • No Cash-Out (Fair, Good or excellent credit): 80%
    • Cash-Out (Fair, Good or excellent credit): 75%

What is the origination charge?

Also known as origination fees, this is the amount charged by your lender for administrative costs associated with the mortgage application and processing.

What are points?

Points are a form of pre-paid interest. In exchange for increasing the upfront payment to the lender you can reduce the interest rate on the loan and therefore the monthly payment you will make. As the purchase of points is a form of interest payment the expense is generally tax deductible.

Why do I have to get title insurance?

  • When you refinance your mortgage, you will generally have to pay for title insurance. If you purchased your house within the last three years, you may be entitled to a substantial discount, known as a re-issue rate.

  • There are two types of title insurance: owner’s title insurance and lender’s title insurance. Owner’s title insurance is taken out by the new homeowner (although often paid for by the seller) to protect against future claims; this insurance stays with the homeowner for life, and does not need to be paid for during a refinance. However when you refinance, you may have to pay for lender’s title insurance (even if using the same lender) to satisfy the lender that no new claims or liens have been put on the property since the last time a title search was done.

Why do I have to pay mortgage taxes?

Mortgage tax is a tax levied by state or local governments on the creation of all new mortgages. As a refinance mortgage is effectively a new mortgage, in most circumstances you will have to pay a mortgage tax, just the same as when you acquired the house. You do not however, have to pay a deed/transfer tax, as title to the house is not changing hands. If you are obtaining your refinance mortgage from the same lender that provided your original mortgage, you may be able to avoid paying the mortgage tax if the lender is willing to treat your new mortgage as a modification of your existing mortgage. This will not be possible in all circumstances, and will require the payment of a modification fee to the lender.

What is HARP?

The Home Affordability Refinance Program (HARP) is for homeowners whose conforming mortgage is owned by Fannie Mae or Freddie Mac. HARP is a program sponsored by the Government Making Home Affordable Act that allows homeowners with little equity in their home to refinance at favorable rates. This program is available for homeowners with a Loan to Value of more than 80%, up to 125% (there is no official limit, but maximum amount varies depending on lender)

What is FHA Streamline Refinancing?

The FHA Streamline Finance Program is designed to help homeowners with negative equity refinance their homes. FHA Streamline Financing is a program sponsored by the FHA for homeowners with an existing FHA mortgage. This program allows you to refinance without getting a new appraisal - you can be "underwater" and still qualify for a mortgage.