Know When The
Time Is Right To
Refinance
Explore how refinancing works and when it's right for you. Read the resources here, or get a personalized consultation from a Pennymac loan expert to find out how refinancing could help you achieve your financial goals.
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Whether you're eligible for a cash-out refinance, a streamline refinance, or just a lower rate, refinancing options can help you make the most of your homeownership.
Here are some of the most common reasons to refinance.
Lower your monthly payment.
Refinancing could help you save every month if you get a lower interest rate, for example. (In some cases, a lower monthly payment could mean higher total finance charges over the life of the loan, so we can crunch the numbers to help you see what's best for you.)Remove private mortgage insurance (PMI).
If your property value has increased or if you've paid off some of your principal, you may be able to avoid mortgage insurance on your new, refinanced loan--which could mean more savings for you.Reduce the length of your loan.
If you want to pay off your mortgage faster, refinancing with a shorter loan term can be an attractive option.Switch to a fixed-rate loan.
If you have an adjustable rate mortgage, opting instead for a fixed-rate loan can make it easier to budget with set monthly payments.
Consolidate.
By rolling any personal loans and credit card debt into one mortgage with a single monthly payment, you can simplify your finances and focus on one loan.Access home equity funds.
With rising home values, you may have enough equity to take out a cash-out refinance. This money can be used to finance home improvements, pay off debts or to fund large purchases.The Refinancing Process Explained
Once you decide that refinancing is the right choice for you, submit an application and any necessary documents.
We'll evaluate your application to determine your loan options and eligibility.
After getting approved for your loan, you'll be given the option to lock your rate to avoid possible cost increases due to market fluctuations.
You'll typically lock your rate for a period of either 30, 45 or 60 days.
Next, as part of the underwriting process we will verify your information. An appraisal also may be conducted to estimate your home's current value.
This value could help determine the limit of your loan. Tip: Have a list on hand with any upgrades you may have made to the property during homeownership.
The final stage in the process is to close on the new loan! We will provide you with a Closing Disclosure (CD) document detailing important information and costs relevant to the loan. At closing, you’ll review the details together, sign all documentation and settle on any additional costs that are not included in the closing costs.
Refinancing Resource Center
Frequently asked questions
Similar to when you initially purchased your home, you will have to pay fees, taxes and closing costs on your refinance mortgage. It is important to determine how long it will take to reach your “break-even point” when refinancing a mortgage. The break-even point is the point at which the monthly savings created by a mortgage refinance offsets the cost of refinancing.
Per the Consumer Financial Protection Bureau, you should consider how long it will take for the monthly savings to pay for the cost of the refinance. Review the closing costs you paid for your original loan to purchase the home. Refinancing costs can be about the same amount. A common rule of thumb is to proceed only if the new interest rate saves you that amount over about two years (in other words, if you break even in about two years).
So, make sure you do the math and understand how the new loan will affect you.
Your credit score not only helps determine your mortgage refinance approval, but also determines the interest rate your lender is going to offer. Simply put, the higher your credit score, the lower your interest rate is going to be.
For example, a borrower with an average loan size of $250,000 and a credit score of 640 may pay around $2,500 more a year in interest payments than a borrower with a credit score of 760. If your credit score has fallen since you first obtained your mortgage, you can expect to pay higher rates—which may negate any potential benefit of refinancing.
Before signing a new mortgage, you’ll need to assess your current loan balance. If you’re currently on the 15th year of your 30-year loan, you may want to look at your options for refinancing with a shorter term. This makes sense for a lot of homeowners because it allows them to take advantage of historically low rates without pushing out their payoff date, which can often provide substantial savings.*
A common use for refinancing is to shorten the length of a loan and pay it off earlier. If current mortgage interest rates are lower than your current interest rate, it’s common to have a similar monthly payment amount while shaving years off your mortgage.
For example, homeowners with a 30-year mortgage may refinance into a 15-year loan. This can be a great choice, but there are things to consider:
First, most banks and other lenders will allow you to pay off your mortgage early. So, if you want to pay off your 30-year loan in 15 years by making extra payments, you may be able to do so. This can help you build equity faster and save on interest payments. If circumstances change and times get tough, you have the freedom to revert to the original contractual 30-year payment.
On the other hand, a 15-year loan typically offers even greater interest savings, and can also help you build equity quickly—so you can own your home free and clear sooner rather than later.
Yes, depending on your current situation, one of these options might make sense for you. Also, if you currently have a Conventional, FHA, VA, Jumbo, or USDA loan, there are options available including several streamline refinance programs. Streamline refinance programs offer a simplified approval process by reducing or eliminating many of the income, credit or appraisal reviews that are included in standard refinance programs. The VA streamline program is called the Interest Rate Reduction Refinance, or “IRRRL”. It’s important to mention that streamline refinance loans may not allow a cash-out option. Also, like other refinancing options, streamline refinance loans may increase your total cost over the life of the loan.
Ultimately, it’s critical to crunch the numbers to see if refinancing makes sense for you. Even if you’ve been unable to refinance in the past, loan programs and rates are always changing. These changes, along with rising home values in several markets, may enable you to reduce your rate or lower your monthly payments.
But you don’t have to go at it alone! Pennymac Loan Officers are always ready to answer your questions and guide you along the path to a successful refinancing.
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