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Refinance Loan FAQs
Question
When is it a good idea to refinance a mortgage?
Answer
It is a good idea to refinance a home when refinancing will save you money and/or you need to get money out of your home to purchase or pay for something important. There is always an upfront cost to refinancing and that cost needs to be analyzed along with the potential savings from refinancing before a decision can be made. Whereas buying a home the first time can add incalculable value (independence, pride of ownership, etc.) to a persons life, refinancing is very much just a numbers-driven cost-benefit analysis.
Question
How long should a homeowner wait before refinancing?
Answer
It’s not about how long to wait -- it’s about when refinancing will save you money. In a fast changing, decreasing interest rate environment, someone might refinance every year or so. In our current market of flat to increasing interest rates, the goal for most homeowners should be to lock in a fixed rate and not refinance until they have a specific reason to do so.
Question
Can you refinance a non-VA loan with a new VA loan?
Answer
Yes, however it is like doing a brand new VA loan and NOT the same as the VA Streamlined Interest Rate Reduction Refinance Program (VA to VA). Depending on the size of the loan and the veteran’s disability status, among other things, it would be determined through a financial analysis more than anything else. We do these kinds of comparisons for our clients all the time.
Question
What are the pros and cons of HELOCs (Home Equity Lines of Credit) with regards to debt consolidation?
Answer
HELOCs make sense if the rate at which you can borrow is equal to or better than the debts you are paying off. I say “equal to” because if you are paying off credit cards, you will be turning your interest expense into something you may be able to itemize on your tax return to help offset the interest expense, therefore reducing the overall expense of the debt by having it in a HELOC. Keep in mind that in Texas you cannot borrow more than 80% of the value of your home after the initial purchase. You can, however, borrow up to 100% on second homes and investment properties.
Question
For loans with a prepayment penalty, will refinancing still trigger the penalty fee?
Answer
First of all, a prepayment penalty is a fee charged by the lender when a borrower pays off a large portion or the entire balance of a loan before the maturity date. One scenario would be making an extra $100 per month payment to principal so that your 30-year mortgage is paid off in about 25 years. There are two types of prepayment penalties. A “hard” prepay penalty is charged if you sell the home or refinance it within a specific period of time (usually 2 or 3 years). After that time, a penalty would not be charged. A “soft” prepay penalty would NOT be charged if you sold the property, but would be charged if you were to refinance it within the prepay period. A typical prepay penalty might be 6 months of interest on 80% of the current mortgage balance. On a home with a $100,000 loan balance, that would be a penalty of about $3,000. Borrowers with good to great credit rarely have prepayment penalties on their loans. Also, buyers using the FHA or VA programs will never have prepayment penalties.
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