When to Refinance a Mortgage

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If you’ve lived in your current home for a few years, you might be curious about refinancing your mortgage for a lower — historically lower — interest rate.

Mortgage refinancing provides you with a few options. For example, you can refinance to get a hold of a lower refinance rate and monthly mortgage payment, or take advantage of a cash-out refinance to free up money for home improvements. As a lender licensed in all 50 states, Quontic can help guide traditionally underbanked customers through the refinance process.

Here’s what you need to know.

What Does it Mean to Refinance a Mortgage?

Depending on your overall financial goals, refinancing your mortgage may be a good way to secure a lower monthly payment, lock-in a better loan term and more. When you refinance your mortgage, you replace your original mortgage with a new one. You use this new loan to pay off your old mortgage loan.

There are several reasons why you might decide to refinance your mortgage. You might choose to refinance if you can get a better interest rate or term, whether with your current lender or another company. Or, perhaps you want to shed private mortgage insurance (PMI), which was likely required if you put down less than a 20% down payment on your home.

Regardless of your reasons, refinancing your mortgage may help you save money over the course of your loan. But, you need to consider all the financial implications before you proceed.

Fixed-Rate Mortgages vs. Adjustable-Rate Mortgages

When it comes to different versions of a mortgage, there are two common loan types:

  • Adjustable-rate mortgage (ARM): This type of mortgage loan has an initial fixed rate period after which the interest rate can be periodically adjusted throughout the term of the loan. It’s also known as a variable-rate mortgage.

  • Fixed-rate mortgage (FRM): The interest rate on this type of mortgage loan stays the same throughout the period of the term. Someone with an ARM (and a higher interest rate) might be interested in refinancing their current mortgage to an FRM with a more reasonable rate.

When to Refinance a Mortgage

In general, it’s a good time to consider refinancing your mortgage whenever it will save you money. That doesn’t necessarily mean moving from a shorter term loan to a longer term. Though, if you have a short term mortgage with a variable rate, switching to a new longer term loan at a substantially less rate might make sense — but again, you need to run the numbers.

If you can lower your mortgage rate by 1%, you’re likely in a good position to refinance your loan, according to The Mortgage Reports. Depending on your loan balance and closing costs, you could save a couple hundred dollars a month. If you can lower your interest rate by a lesser percentage, it may still be worthwhile to see if refinancing could be a good move for you.

A refinance loan might result in more upfront costs, but it may also save you money over the life of the loan.

When Does It Make Sense to Refinance a Mortgage?

While refinancing may potentially save you money, there are several instances where it may or may not make sense for you.

A break-even point or period is the number of months it takes you to recover the new mortgage’s closing costs and experience your new savings. If your break-even point is three years and you plan on moving in two, it generally wouldn’t make sense to refinance but it is dependent on the individual’s circumstance. (Again, a mortgage calculator can help you figure out the numbers.)

If your credit history and credit score needs some cleaning up, you may want to work on that to qualify for better rates. You also need to consider closing costs — if you can’t budget thousands of dollars to put toward those costs and other associated fees, it might not be a good time to refinance.

Do an honest assessment of your current and near-future financial situation to decide if refinancing is right for you.

How Many Times Can You Refinance a Mortgage?

Technically, there’s no legal limit on how many times you can refinance your mortgage. However, different lenders have their own guidelines and stipulations — some say that you can only refinance every six months, for example. Refinancing may also temporarily ding your credit score, so keep that in mind if you have other big purchases on the horizon.

How Do You Refinance a Mortgage?

The process is similar to how you initially applied for a mortgage. You’ll want to compare lenders, terms and costs to make sure any “savings” are not eclipsed by a policy that turns out to be bad for you.

At a glance, you want to:

  • Review your refinance options.
  • Check out mortgage refinance rates (mortgage interest rates vary pretty regularly).
  • Take into account the costs of refinancing.
  • Calculate your monthly savings.

It’s important to note that, similar to getting your initial mortgage, a refinanced mortgage may come with closing costs and other fees. Make sure you read the fine print and reach out to your mortgage lender with any questions.

The Documents You Need to Refinance Your Mortgage

Remember, you’re applying for a new loan and possibly moving to a different lender altogether. That means (on top of filling out all sorts of fun paperwork) you’ll need to organize some important documents for the process.

Prepare to gather:

  • W-2s, usually for the last two years (self-employed individuals will have to supply profit-and-loss statements).
  • Pay stubs, usually for the last 30 days.
  • Tax returns, usually for the last two years.
  • Statement of assets (bank accounts, retirement accounts, etc.)
  • Statement of debts (payday loans, etc.)
  • Proof of home insurance.

Depending on your lender, you may need to provide additional documentation to qualify for the loan as well. With Quontic, as a community development financial institution (CDFI), you won’t have to worry about barriers such as providing tax returns and W2s to qualify for a Community Development loan1. Quontic reviews a borrower’s overall credit and financial profile when evaluating their profile.

Is Now a Good Time to Refinance a Mortgage?

For the most part, if:

  • Your credit is in good shape,
  • You can benefit from better mortgage terms,
  • You can capitalize on a lower interest rate, 
  • Your break-even-point math checks out, and
  • You have funds on hand to cover closing costs and other fees, then…

Refinancing now might make good financial sense for you. Overall, you want to take into account all of the associated costs (both time and money involved) when you’re considering refinancing your mortgage.

Refinancing Through Quontic

Qualified borrowers can refinance through Quontic if they have at least a 660 credit score and have made up to 24 on-time monthly mortgage payments. We have a team of mortgage experts — licensed to lend across all 50 states — to help guide you through the refinancing process with our community development loans1. 

Quontic offers several mortgage programs for homeowners:

  • FHA loans1: For first-time homebuyers, this program requires a down payment as low as 3.5% (compared to 20% with conventional loans) and may be a good option for qualified borrowers with a less-than-stellar credit score.

  • VA loans1: This home-loan program provides 100% financing for eligible veterans and their spouses.

  • Community Development Loans1: This program may be a good option for self-employed individuals who wouldn’t qualify for a traditional loan, but have a qualifying credit score and down payment.

Quontic offers other loan programs, such as reverse mortgages and community development loans1, and bank products, such as high-interest checking and high-yield savings accounts. If you’re looking for other mortgage and banking options, consider Quontic.

1All lending products are subject to approval. Rates, program terms & conditions are subject to change without notice. Not all products are available in all states or for all amounts. This does not represent an offer to enter into a loan agreement. Other requirements, restrictions & limitations apply. Information is accurate as of September 13, 2021.

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