When To Refinance a Purchase Mortgage?Purchase & Refinance Mortgage LoansUpdated on Apr 3, 2018 View more like this | Visit NEW YORK, NY | Contact heritus |
Summary: Sticking to the original purchase mortgage may not always be feasible for all borrowers. There may be times when they may want to refinance. This article throws light on the best reasons behind refinancing purchase mortgages.
The usual term of a purchase mortgage is 30 years; but not everyone might stay with the original home loan for this entire period of 30 years. A few may decide to sell their homes while others may prefer to get their loans refinanced.
Refinancing a purchase mortgage could be an easy task. The options available are many with lenders spread across all parts of the country. The tough competition in the field has in fact made lenders go in search of prospects. Most of them prefer to buy ‘purchase mortgage leads’ from reputed lead generation firms, to get verified details of prospective borrowers.
It doesn’t matter when and how many lenders get in touch with borrowers through purchase mortgage leads. There is one question every borrower needs to ask himself before he says ‘Yes’ to any of these lenders – “Do I need to refinance my purchase mortgage?”
If the answer to this question is a ‘yes,’ the borrower may want to find out if this is the right time to refinance his purchase mortgage.
Refinancing a Purchase Mortgage – The Process
Except for all the paperwork that is associated with purchasing a home, refinancing a mortgage involves the same process that one needs to go through while applying for a purchase mortgage. An application will have to be submitted with the financial information and the credit report. The property will have to be appraised. And then it is a wait for about 4 to 6 weeks until the application for refinance is approved by the lender. Once approved, the new lender will pay off the balance on the existing mortgage and then the borrower starts making his monthly mortgage payments to the new lender.
While the existing lender may agree to refinance the purchase mortgage, the borrower also has other options that will meet his needs. However, he will have to shop around, compare the quotes and find out which lender offers the best refinance rate and terms. He may wish to do an online research or obtain quotes from the lenders who come to him via purchase mortgage leads. If the borrower has a decent credit score, and enjoys a fairly strong financial position with some home equity, he gets the power to negotiate for better rate and terms. If not, he has to choose the best of the options he gets.
Why Refinance?
The most common reason why anyone would refinance a purchase mortgage is to reduce his monthly mortgage payments. That said one should ideally choose the refinancing option if he benefits from the same in one way or the other.
The Best Time to Refinance
There is no particular season for refinancing mortgages. It can be done any time during the term of the loan. However, it is always better to wait for at least one year from the date of signing the original purchase mortgage. In fact most lenders who come through purchase mortgage leads may even be reluctant to refinance mortgages that are less than a year old.
One more thing that borrowers need to keep in mind when it comes to choosing the right time to refinance is prepayment penalty. Most lenders charge prepayment penalties if the mortgage is getting paid off within 3 to 5 years of its origin.
Prepayment penalties are usually a feature of ‘no-closing-cost’ mortgages where in the lender would have charged a higher rate to waive off the closing fees or to make up for a weak credit score. Although prepayment penalties may not stop anyone from refinancing their mortgage, they do add up to the cost of refinancing. And, if this cost is too high, the borrower would be better off sticking to the original purchase mortgage.
Reasons for refinancing a purchase mortgage
Among the many reasons to refinance a purchase mortgage, the most common ones include:
To Obtain a Lower Rate
The mortgage rates in the market keep fluctuating every now and then. If they have fallen really low from what they were when the borrower took out his purchase mortgage, it might make sense to refinance the mortgage.
To Get Debt-Free
Purchase mortgage refinance offers a chance to reduce the term of the mortgage and save lots of money on interest. For instance, a 30 year mortgage can be refinanced into a 20 or even 15 year mortgage and paid off faster. Generally, the shorter the term of the mortgage, the lower would be the interest rate. Hence, there are chances that a borrower might get to shorten the term of his new mortgage without much of an increase on his monthly payments.
To get some extra cash
There is an option called cash-out refinance wherein the borrower gets some extra money after paying back his original purchase mortgage. Nevertheless, the condition is that the value of the property should be higher than what he owes. For instance, he will be eligible for a cash-out refinance is his property values at $250,000 and he owes $100,000 on his mortgage. He can then go for a new mortgage of $150,000, pay back his existing mortgage of $100,000 and use the extra $50,000 to cater to his financial needs. This could work well with a low mortgage rate.
To change the mortgage type
It might make sense to refinance a purchase mortgage to convert it from an Adjustable-rate mortgage to a Fixed-rate mortgage. This way, the rate and the monthly payments would be predictable.
To get rid of mortgage insurance
Although mortgage insurance may be mandatory in most cases, a borrower can eliminate the same by going for a refinance when he reaches the 20 percent home equity stage. So, if the mortgage that the borrower owes is less than 80% of his home equity, he will not have to pay up for mortgage insurance if he refinances his mortgage.
Apart from the above, it makes sense to refinance a purchase mortgage when the borrower wants to remove his co-borrower’s name from the mortgage. This is typical in case of a divorce. However, if the borrower defaults on his payment, the home loan company might come looking for the ex.
The usual term of a purchase mortgage is 30 years; but not everyone might stay with the original home loan for this entire period of 30 years. A few may decide to sell their homes while others may prefer to get their loans refinanced.
Refinancing a purchase mortgage could be an easy task. The options available are many with lenders spread across all parts of the country. The tough competition in the field has in fact made lenders go in search of prospects. Most of them prefer to buy ‘purchase mortgage leads’ from reputed lead generation firms, to get verified details of prospective borrowers.
It doesn’t matter when and how many lenders get in touch with borrowers through purchase mortgage leads. There is one question every borrower needs to ask himself before he says ‘Yes’ to any of these lenders – “Do I need to refinance my purchase mortgage?”
If the answer to this question is a ‘yes,’ the borrower may want to find out if this is the right time to refinance his purchase mortgage.
Refinancing a Purchase Mortgage – The Process
Except for all the paperwork that is associated with purchasing a home, refinancing a mortgage involves the same process that one needs to go through while applying for a purchase mortgage. An application will have to be submitted with the financial information and the credit report. The property will have to be appraised. And then it is a wait for about 4 to 6 weeks until the application for refinance is approved by the lender. Once approved, the new lender will pay off the balance on the existing mortgage and then the borrower starts making his monthly mortgage payments to the new lender.
While the existing lender may agree to refinance the purchase mortgage, the borrower also has other options that will meet his needs. However, he will have to shop around, compare the quotes and find out which lender offers the best refinance rate and terms. He may wish to do an online research or obtain quotes from the lenders who come to him via purchase mortgage leads. If the borrower has a decent credit score, and enjoys a fairly strong financial position with some home equity, he gets the power to negotiate for better rate and terms. If not, he has to choose the best of the options he gets.
Why Refinance?
The most common reason why anyone would refinance a purchase mortgage is to reduce his monthly mortgage payments. That said one should ideally choose the refinancing option if he benefits from the same in one way or the other.
The Best Time to Refinance
There is no particular season for refinancing mortgages. It can be done any time during the term of the loan. However, it is always better to wait for at least one year from the date of signing the original purchase mortgage. In fact most lenders who come through purchase mortgage leads may even be reluctant to refinance mortgages that are less than a year old.
One more thing that borrowers need to keep in mind when it comes to choosing the right time to refinance is prepayment penalty. Most lenders charge prepayment penalties if the mortgage is getting paid off within 3 to 5 years of its origin.
Prepayment penalties are usually a feature of ‘no-closing-cost’ mortgages where in the lender would have charged a higher rate to waive off the closing fees or to make up for a weak credit score. Although prepayment penalties may not stop anyone from refinancing their mortgage, they do add up to the cost of refinancing. And, if this cost is too high, the borrower would be better off sticking to the original purchase mortgage.
Reasons for refinancing a purchase mortgage
Among the many reasons to refinance a purchase mortgage, the most common ones include:
To Obtain a Lower Rate
The mortgage rates in the market keep fluctuating every now and then. If they have fallen really low from what they were when the borrower took out his purchase mortgage, it might make sense to refinance the mortgage.
To Get Debt-Free
Purchase mortgage refinance offers a chance to reduce the term of the mortgage and save lots of money on interest. For instance, a 30 year mortgage can be refinanced into a 20 or even 15 year mortgage and paid off faster. Generally, the shorter the term of the mortgage, the lower would be the interest rate. Hence, there are chances that a borrower might get to shorten the term of his new mortgage without much of an increase on his monthly payments.
To get some extra cash
There is an option called cash-out refinance wherein the borrower gets some extra money after paying back his original purchase mortgage. Nevertheless, the condition is that the value of the property should be higher than what he owes. For instance, he will be eligible for a cash-out refinance is his property values at $250,000 and he owes $100,000 on his mortgage. He can then go for a new mortgage of $150,000, pay back his existing mortgage of $100,000 and use the extra $50,000 to cater to his financial needs. This could work well with a low mortgage rate.
To change the mortgage type
It might make sense to refinance a purchase mortgage to convert it from an Adjustable-rate mortgage to a Fixed-rate mortgage. This way, the rate and the monthly payments would be predictable.
To get rid of mortgage insurance
Although mortgage insurance may be mandatory in most cases, a borrower can eliminate the same by going for a refinance when he reaches the 20 percent home equity stage. So, if the mortgage that the borrower owes is less than 80% of his home equity, he will not have to pay up for mortgage insurance if he refinances his mortgage.
Apart from the above, it makes sense to refinance a purchase mortgage when the borrower wants to remove his co-borrower’s name from the mortgage. This is typical in case of a divorce. However, if the borrower defaults on his payment, the home loan company might come looking for the ex.
