LOAN PROGRAMS
Refinance & Home Equity
Refinance Loans and Home Equity Loans
Your home is your largest investment and over time, most homes appreciate. This means you build equity in your home (you have profit in the home).
The money you earn in it doesn’t have to sit there unused if you plan to stay in the home for a long time. If you need the funds for another expense or you want to invest it elsewhere, you have options.
Even if you don’t want to touch your home’s equity, but wish you had a lower mortgage payment or different term, refinancing your mortgage may be an option.
We offer many options to help you achieve your financial goals, using your home as leverage.
What Does it Mean to Refinance?
You might wonder why would I refinance, what does it mean?
When you refinance your loan, you trade your old loan in for a loan with new terms. These terms could be a lower interest rate, a loan without PMI, or a loan for a higher loan amount using your home’s equity.
The sky’s the limit. Here’s how we help our borrowers refinance their mortgage loans.
Rate/Term Refinance
A rate/term refinance is to get a new rate or better term on your mortgage loan. Borrowers use this option when they were unable to qualify for a low rate when they bought the home or they want to refinance out of unattractive loan terms, such as an adjustable-rate loan.
Here’s what you should know about a rate/term refinance:
- You may be able to eliminate PMI on your purchase mortgage if you owe less than 80% of your home’s value now.
- Your loan amount cannot be higher than what you currently owe.
- You can choose a different loan type (ARM vs fixed), etc.
- You can shorten your loan’s term if you qualify for the higher payment.
Most borrowers can refinance after making only a few payments on their current mortgage, but you can refinance at any point throughout your loan term.
Cash-Out Refinance
A cash-out refinance is for a loan amount higher than your current balance. Borrowers use this option when they owe much less than their home’s value and they want to use their home equity.
The money that’s left over after paying off your first mortgage is yours to use how you want. You can borrow up to 80% of the home’s current value with a cash-out refinance.
Here’s what you should know about a cash-out refinance:
- You won’t owe PMI because you can’t borrow more than 80% of the home’s value.
- You’ll receive the equity in one lump sum after the closing.
- Your mortgage payment will likely increase, so make sure you can accommodate.
Most borrowers can refinance using the cash-out refinance once they’ve made at least 6 payments on their current mortgage, but it usually takes longer to earn enough equity to use a cash-out refinance.
Reasons Borrowers Use a Cash-Out Refinance
You might wonder why anyone would take equity out of their home. But, if you plan to stay in the home for a while, there are many good reasons to use the equity including:
- Make home improvements to increase the home’s value.
- Pay off high interest credit card or consumer debt.
- Pay for a large expense (wedding, college, large vacation).
- Invest in another investment vehicle.
- Have an emergency fund on hand.
What are Home Equity Loans?
If you have equity in your home but don’t want to refinance your first mortgage, there are also second lien options. These loans are separate from your first mortgage but offer the same idea – allowing you to tap into your home equity.
You have two options – a home equity loan or a home equity line of credit (HELOC). Here’s how they work.
Home Equity Loan
A home equity loan is a fixed-rate mortgage. You can use it to borrow up to 80% of your home’s equity minus any existing loans on the home.
You’ll receive your home equity loan funds in one lump sum like a cash-out refinance and you can use the funds how you wish. Your payments start right away with principal and interest due each month.
Home Equity Line of Credit
A home equity line of credit is also a second mortgage, but it works differently. You can borrow up to 80% of your home’s equity minus any existing loans on the home, but your interest rate is variable. This means your rate can adjust monthly as it’s tied to a specific index.
You receive a line of credit that you can use how you want. You can withdraw all the funds, no funds, or just some of them as you need. Like a credit card, you’ll pay interest on the amount you withdraw.
HELOCs have two distinct periods:
- Draw period: This is the first 10 years of the loan term. During this time, you can use funds, pay interest only, or repay the principal and reuse the funds. Think of it like a revolving debt (credit card). You pay interest on what you use, but not on the portion of your credit line you don’t use.
- Repayment period: During the repayment period, you pay back the amount you withdrew including interest. The payments are spread out over 20 years, but you can pay the full amount back early if you want.
A HELOC is good for borrowers who have an ongoing need for funds or who aren’t sure how much they need. They work well for home renovation projects, emergency funds, or for multiple expenses throughout the next few years.