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Should You Refinance Your Mortgage?

Opting to refinance your mortgage means you can apply for a new mortgage with better terms than your existing mortgage. A refinance will typically require less paperwork and can close faster than a purchase transaction.

Mortgage refinance rates can change daily, so it is important to lock your rate as soon as possible. This is an important step because if your interest rate remains unlocked it could change by the time it takes you to submit your loan application.

You can use our free refinance calculator to determine the cost of your refinance and to help you find a loan program that fits your unique financial situation.

First thing’s first… CAN you refinance your home?

In order to apply for a refinance, you must be a qualified borrower. A lender will check that you have a steady income, good credit and preferably 20% equity in your home. To make sure you are a qualified borrower your lender will ask you to prove your creditworthiness to qualify.

First, Envoy will need to make sure that a refinance makes sense for you. Please contact one of Envoy’s loan originators to discuss your options for refinancing your home and what options work better for your specific financial needs.

Here are some other ways you can prepare for a mortgage refinance:

Know how much home equity have

To be considered for a refinance you will need to have equity in your home. If you do not have equity saved up in your home, refinancing may not be a good idea. It is best to have at least 20% equity saved, but if you have less your loan originator will need to determine if a rate-and-term refinance is still a worthwhile option. Bottom line—the more equity saved the bigger your savings.

Your equity is the appraised value of your home minus how much you currently owe on your mortgage. The less you owe on your mortgage the greater the equity. You need to take a close look at how much equity you currently have and whether it makes sense to refinance.

Calculate your debt-to-income ratio

Your debt-to-income ratio is the number lenders use to determine if you can qualify for your new loan. This number is calculated by adding up all monthly debt payments and dividing by your gross monthly income (before tax). Typically, your new mortgage payment should not exceed 30% of your income and your debt should fall under the 40% bracket before applying for a refinance.

Benefits of Refinancing Your Mortgage

The first step in deciding if a refinance is the right option for your unique financial situation is considering your reason for refinancing. Do this before you speak with your Envoy loan originator about a refinance.

Here are some good reasons to refinance:

  • Lower your monthly mortgage payment

Reducing your mortgage interest rate by even ½ a point can help you save thousands annually.

  • Switch to an ARM

An adjustable-rate mortgage may help you reduce your current mortgage payments if you are thinking about buying a new house in the very near future.

  • Shorten your loan term

Choosing to reduce your loan term can help you pay off your loan faster and usually comes with a reduced interest rate, saving you thousands over the life of the loan.

  • Use a cash-out refinance to pay off debts

A cash-out refinance lets you turn your equity into cash, so you can finance things, like a remodel or pay for college. If you have high-interest payments, like credit card, auto loan or student loan debt, you might benefit from a cash-out refinance.

  • Consolidate debts

If you have high-interest payments, like credit card, auto loan or student loan debt, you might benefit from refinancing them into your new mortgage loan to reduce multiple interest payments.

  • Eliminate PMI

Private Mortgage Insurance (PMI) is often required by lenders if you make a down payment that is less than 20% of the home’s selling price. PMI can sometimes be removed as you pay down your loan and when your loan-to-value (LTV) ratio reaches 78%.

How to Refinance Your House

Applying for a refinance doesn’t have to be difficult if you are prepared. Follow these easy steps as you apply for your refinance loan.

Step 1: Know the reason why you are refinancing.

Whether you want to reduce your monthly mortgage payment, shorten the term on your loan or consolidate debts, it is important to determine your motives for applying for a refinance, so you can pay less over the life of the loan.

Step 2: Have a healthy credit score.

You will need to get prequalified for a refinance just like you did when you got prequalified for your current loan. A healthy credit score means faster prequalification and possibly lower refinance rates.

Step 3: Calculate your equity.

This number can easily be calculated by taking the value of your home and subtracting the money you still owe on your mortgage.

For example, if you still owe $200,000 on your home, and it is worth $350,000, your home equity is $150,000.

Step 5: Disclose your assets.

Gather up all documentation that will help you get preapproved for a refinance. Providing your recent pay stubs, bank statements, tax returns, credit and assets upfront will help you close the deal faster.

Step 6: Order an appraisal

Depending on the refinance loan chosen, an appraisal may be required to determine your home’s official value.

Step 7: Determine closing costs.

You have the option to pay your closing costs in cash or finance the costs through your new loan. However, opting to finance closing costs could result in a higher interest rate.

Take the First Step to Refinancing Your Home

Whether you are ready to refinance right now or just gathering information, Envoy Mortgage can help you get started with our free refinance calculator or you can speak with a loan originator directly. Contact us to learn more about the refinance process, so we can help you LOVE your mortgage experience!

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