Mortgage Refinance of June 2024

Refinance
Secure a mortgage refinance with competitive rates and flexible terms online from one of the companies vetted by our experts. As of 20.06.2024, you have 2 options available. Boost your chances of approval by completing an application with a free credit score check.
Offers: 2
Updated:
20.11.2023
07:37
Rocket Mortgage
30-Year Fixed
Rating by Finanso®
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The rating by Finanso® is determined by our editorial team. The scoring formula includes a financial product type as well as tariffs, fees, rewards and other options.

Recommended FinScore™
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650
1000
Rate
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Interest rate

6.00 – 6.28 %
Term
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Loan term for the financial product

5 years – 30 years
Freedom Mortgage
Refinance & Remove PMI
Rating by Finanso®
i

The rating by Finanso® is determined by our editorial team. The scoring formula includes a financial product type as well as tariffs, fees, rewards and other options.

Recommended FinScore™
0
300
650
1000
Mortgage Refinance of June 2024

Mortgage refinance, often referred to simply as refinance, is a financial strategy employed by homeowners to revise the terms of their existing mortgage agreement. Essentially, it involves replacing the current mortgage with a new one that typically offers more favorable terms, such as lower interest rates, adjusted payment schedules, or changes in loan duration. This process allows homeowners to adapt their mortgage arrangements to changing financial circumstances or to take advantage of improved market conditions.

From a broader perspective, mortgage refinancing serves as a mechanism through which individuals can optimize their debt management strategies. By reassessing and potentially restructuring their mortgage terms, borrowers aim to achieve various objectives, including reducing monthly payments, accessing home equity, or consolidating debt.

Features

  1. Lower Interest Rates. Refinancing allows borrowers to take advantage of lower interest rates, reducing the amount of interest paid over the life of the loan. This is particularly beneficial in a declining interest-rate environment.

  2. Reduced Monthly Payments. By securing a lower interest rate or extending the loan term, borrowers can decrease their monthly mortgage payments, thereby improving monthly cash flow.

  3. Cash-Out Refinance. Homeowners can access their home equity by refinancing for a higher loan amount than the existing mortgage, receiving the difference in cash. This can be used for home improvements, debt consolidation, or other financial needs.

  4. Change in Loan Type. Refinancing provides the opportunity to switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan, or vice versa, depending on which loan type better suits the borrower’s current financial situation and risk tolerance.

  5. Shortened Loan Term. Borrowers can choose to refinance into a loan with a shorter term, such as moving from a 30-year to a 15-year mortgage, which can lead to significant interest savings over the life of the loan.

Pros and Cons

Pros

Elimination of Private Mortgage Insurance (PMI). If a homeowner has built up sufficient equity in their home (typically 20% or more), refinancing can eliminate the need for private mortgage insurance, reducing the monthly payment.

Improved Loan Terms. Refinancing can offer more favorable loan terms, including better interest rates and more manageable payment schedules, tailored to the borrower’s current financial situation.

Debt Consolidation. Homeowners can consolidate high-interest debt, such as credit cards or personal loans, into a single, lower-interest mortgage payment through cash-out refinancing, simplifying their debt repayment strategy.

Cons

Closing Costs. Refinancing involves various fees and closing costs, such as appraisal fees, origination fees, and other expenses, which can add up to 3% to 6% of the loan’s principal.

Extended Loan Term. If the loan term is extended, even with a lower interest rate, the borrower may end up paying more in total interest over the life of the loan.

Impact on Credit Score. The refinancing process includes a credit check, which can temporarily lower the borrower’s credit score. Closing an old loan and opening a new one can also impact credit history.

How to Get Mortgage Refinance?

Apply for a loan

  1. Evaluate Your Home’s Equity. Determine your home’s current value and subtract the remaining balance on your existing mortgage. The higher your equity, the better the refinancing options available to you. You may need a professional appraisal to confirm your home’s value. This step is often required by lenders during the refinancing process.

  2. Research Loan Options and Lenders. Shop around for different mortgage refinance rates and terms from multiple lenders, including banks, credit unions, and online lenders. Consider using a mortgage broker to help you find the best deal. Look at customer reviews and ratings to ensure you choose a reputable lender with good customer service and favorable loan terms.

  3. Submit Your Application. Fill out the refinance application with your chosen lender. Provide accurate information about your income, assets, debts, and employment. Ensure all sections are completed correctly to avoid any issues or delays during the underwriting process.

  4. Lock in Your Interest Rate. Decide whether to lock in your interest rate to protect against market fluctuations before the loan closes. Rate locks typically last between 15 to 60 days. Locking your rate provides certainty, while floating it may offer lower rates if the market improves. Choose based on your risk tolerance and market conditions.

  5. Underwriting and Appraisal. Your lender will verify your financial information and review your credit history during underwriting. They may request additional documents or clarifications. The lender will order an appraisal to determine the current value of your home. The appraisal results can impact your loan terms and eligibility.

  6. Review the Loan Estimate and Closing Disclosure. Once approved, you will receive a Loan Estimate outlining the loan terms, interest rate, monthly payments, and closing costs. Review this document carefully. A few days before closing, you’ll receive a Closing Disclosure with the final loan terms and costs. Ensure all details match the Loan Estimate and address any discrepancies with your lender immediately.

  7. Close on the Loan. Coordinate a closing date with your lender, typically at a title company or attorney’s office. On closing day, bring a valid ID, any required documents, and funds for closing costs (if not rolled into the loan). Carefully review and sign the final loan documents. Verify that the terms match your expectations and the Closing Disclosure. Pay any closing costs not included in the loan. These may cover appraisal fees, title insurance, and origination fees.

  8. Finalize the Refinance. After closing, your new lender will pay off your existing mortgage with the funds from the new loan. For most refinance transactions, you have a three-day right of rescission period during which you can cancel the loan if needed. After this period, the new loan is finalized.

Requirements

  1. Credit Score. Generally, a score of 620 or higher is required for conventional loans. FHA loans typically require a minimum credit score of 580.

  2. Debt-to-Income Ratio (DTI). Lenders prefer a DTI ratio below 43%, but some may allow up to 50% depending on other factors.

  3. Home Equity. Borrowers usually need at least 20% equity in their home for a standard refinance without PMI. Cash-out refinance requires sufficient equity to withdraw additional funds while maintaining an acceptable LTV ratio.

  4. Employment and Income Verification. Proof of steady employment and income, typically verified through recent pay stubs and W-2 forms. May need to provide tax returns and additional documentation to verify income stability.

  5. Property Appraisal. An appraisal to determine the current market value of the property. The home must be in good condition to qualify for refinancing.

  6. Current Mortgage Status. Generally, lenders require that borrowers have no late payments on their existing mortgage for at least the past 12 months. Information about the existing mortgage, including balance, interest rate, and remaining term.

  7. Documentation. Valid ID such as a driver’s license or passport. Recent bank statements to verify assets and reserves. A comprehensive credit report to assess creditworthiness.

Conditions

  1. Interest Rates. Fixed-rate mortgage (FRM) is a stable interest rate for the entire loan term. An adjustable rate mortgage (ARM) is an initial fixed-rate period followed by variable rates based on market conditions.

  2. Loan Terms. Short-term loans are options for 10, 15, or 20 years, typically with lower interest rates but higher monthly payments. Long-term loans are options for 25 or 30 years, generally with higher interest rates but lower monthly payments.

  3. Loan Amount. Current balance refinance refinances only the remaining mortgage balance. Cash-out refinance allows borrowers to take out additional funds based on the home’s equity.

  4. Closing Costs. Origination fees are charged by mortgage lenders for processing the new loan. Appraisal fees are for the home appraisal required by the lender. Title insurance and search fees are to protect against issues with property ownership.

  5. Private Mortgage Insurance (PMI). Elimination of PMI is possible if the new loan reduces the loan-to-value (LTV) ratio below 80%. If the LTV ratio remains above 80%, PMI may still be required.

Ways to Get the Money

  1. Direct Payment to Existing Lender. The new lender pays off the existing mortgage balance directly to the current lender. This is the most common method, ensuring the original loan is settled and replaced by the new loan. Any existing escrow accounts may be adjusted or transferred to the new loan if applicable.

  2. Payment of Closing Costs. Closing costs can be added to the loan balance, increasing the total loan amount and spreading the costs over the life of the loan. Borrowers can choose to pay closing costs out of pocket at the time of closing.

  3. Escrow Account Setup. For loans requiring escrow accounts (to pay property taxes and homeowners insurance), the lender will disburse funds to establish and fund the escrow account. The lender will then collect a portion of the escrow funds as part of the borrower’s monthly mortgage payment and disburse payments for property taxes and insurance as they become due.

Best Places to Get Mortgage Refinance

PNC Bank Mortgage stands out for its tailored home loan offerings specifically designed for medical professionals such as interns, residents, fellows, and doctors within five years of completing their residency. Borrowers can secure loans up to $1 million on a primary residence without the need for private mortgage insurance, and they have the flexibility to choose between fixed or adjustable rates. Additionally, PNC offers a fast preapproval process, low minimum credit score requirements, and a variety of discount programs, all available through both online and in-person services. However, the bank does not offer renovation loans.

Chase Mortgage is notable for its attractive relationship discounts, which benefit existing customers. Those with substantial combined assets in Chase deposit and investment accounts can enjoy reduced processing fees and lower mortgage refinance rates. For instance, customers with assets between $150,000 and $499,999 receive $500 off the processing fee, and those with at least $1 million in deposits and investments can secure a rate discount of up to 0.25%. Chase also offers low down payment loans, flexible credit and income requirements for certain loans, and additional discounts for borrowers who complete a loan education course.

Ally Mortgage excels with its remarkably fast mortgage preapproval process, delivering results within three minutes, which is particularly advantageous for those looking to refinance. Potential borrowers can get personalized refinance rates in as little as 15 minutes without affecting their credit scores, and can lock in their rates within 10 minutes of preapproval. Ally also considers alternative credit data, such as utility and rent payments, in some cases, and offers PMI-free loans for jumbo borrowers with a 10% down payment. First-time homebuyers have access to the HomeReady Loan option.

PenFed Credit Union Mortgage is a strong choice for its policy of charging no lender fees; borrowers only need to cover third-party fees like appraisals, title searches, and credit reports. Typical mortgage origination fees, which range from 0.5% to 1% of the loan amount, are eliminated, providing significant savings. For example, on a $400,000 loan, this can save borrowers $2,000 to $4,000. PenFed also offers a Mortgage Member Benefits Program, which provides lender credits up to $2,500 based on the loan amount, further increasing savings for larger loans.

Things to Pay Attention To

  1. Interest Rates. Evaluate interest rates from multiple lenders to ensure you secure the best mortgage refinance rate. Consider whether a fixed-rate mortgage or an adjustable-rate mortgage suits your financial situation and risk tolerance. Be aware of the rate lock period and its implications on your refinance.

  2. Closing Costs. Understand all the fees involved, such as origination fees, appraisal fees, title insurance, and escrow fees. Explore if rolling closing costs into the loan balance is beneficial for you. Compare closing costs across lenders to ensure you are getting a competitive deal.

  3. Loan Term. Decide if you want to shorten your loan term to save on interest or extend it for lower monthly payments. Understand how changing the loan term affects your monthly mortgage payment and overall interest paid.

  4. Loan Type. Determine if a conventional loan or an FHA loan is more suitable based on your credit score and financial status. Look into VA loans, USDA loans, or other special loan programs if you qualify.

  5. Credit Score. Ensure your credit score meets the lender’s minimum requirements. Be mindful that multiple credit inquiries in a short period can temporarily affect your credit score.

How to Repay Mortgage Refinance?

  1. Understand Your New Loan Terms. If you have decided to refinance your mortgage, then familiarize yourself with the new interest rate, whether it's fixed or adjustable, and the term of the loan (e.g., 15, 20, or 30 years). Note your new monthly mortgage payment amount, which includes principal, interest, taxes, and insurance (PITI).

  2. Set Up Automatic Payments. Arrange for automatic payments from your bank account to ensure timely and consistent payments, reducing the risk of missing a payment. Provide your bank with the necessary instructions to transfer the correct amount each month to your mortgage lender.

  3. Make Additional Payments. Consider making additional payments toward the principal to reduce the loan balance faster, potentially saving on interest over the life of the loan. Use bonuses, tax refunds, or other windfalls to make lump sum payments when possible.

  4. Stay Informed About Escrow Accounts. If your mortgage includes an escrow account for property taxes and homeowners insurance, monitor these payments to ensure they are accurate and up-to-date. Review the annual escrow analysis statement provided by your lender to understand any changes in your escrow account and monthly payment adjustments.

  5. Understand Prepayment Penalties. Check your loan agreement for any prepayment penalties that may apply if you pay off the loan early. Calculate the impact of any prepayment penalties to determine if making extra payments is financially beneficial.

  6. Communicate with Your Lender. Contact your lender’s customer service if you have questions or encounter difficulties in making payments. In case of financial hardship, discuss possible options with your lender, such as loan modification, forbearance, or other repayment plans.

Reasons for Getting Rejected for Mortgage Refinance

  1. High Debt-to-Income Ratio (DTI). Lenders evaluate DTI ratios to assess an applicant's ability to manage additional debt responsibly. A high DTI ratio indicates that a significant portion of income is allocated to debt repayment, raising concerns about financial stability.

  2. Insufficient Equity. Lenders consider the LTV ratio, which compares the loan amount to the appraised value of the property. Insufficient equity, particularly in cases of declining property values, may result in rejection, as it increases the lender's risk.

  3. Unstable Employment or Income. Lenders verify employment and income stability to ensure borrowers can meet their repayment obligations. Unstable employment history, frequent job changes, or irregular income sources may raise concerns about repayment ability.

  4. Property Issues. Property appraisals are essential in determining property value and assessing its condition. Issues such as appraisal value lower than expected, property defects, or title disputes can lead to rejection.

  5. Recent Financial Events. Multiple recent credit inquiries or new credit accounts may raise red flags for lenders, indicating potential financial instability or a higher risk of default. Recent events such as foreclosures, bankruptcies, or significant financial losses can negatively impact creditworthiness and increase the likelihood of rejection.

Alternatives

  1. Cash-Out Refinance. While technically a form of mortgage refinance, cash-out refinance allows homeowners to borrow additional funds beyond their existing mortgage balance. Homeowners can use the cash-out proceeds to consolidate high-interest debt, such as credit card balances or personal loans. By incorporating existing debts into the mortgage, borrowers may benefit from lower interest rates and potentially lower monthly payments.

  2. Debt Consolidation Loan. Debt consolidation loans combine multiple debts into a single loan with one monthly payment. Borrowers may qualify for lower interest rates compared to existing debts, reducing the overall cost of borrowing. Debt consolidation loans may offer longer repayment terms, allowing borrowers to spread out payments and manage debt more effectively.

  3. Personal Loan. Personal loans are unsecured loans that borrowers can use for various purposes, including debt consolidation, home improvements, or other financial needs. Personal loans often come with fixed interest rates, making budgeting easier with consistent monthly payments. Loan terms are typically shorter compared to mortgage loans, ranging from 1-7 years, allowing borrowers to repay the debt relatively quickly.

  4. Government Assistance Programs. Government-sponsored programs, such as FHA loans, VA loans, or USDA loans, offer alternative financing options with favorable terms and requirements for eligible borrowers. These programs may provide lower down payment requirements, flexible credit criteria, or assistance with closing costs, making homeownership more accessible.

Editorial Opinion

Mortgage refinance can be a valuable financial tool for homeowners seeking to adjust their existing mortgage terms, potentially saving money on interest payments, consolidating debt, or accessing home equity for various purposes. However, it's essential for borrowers to carefully evaluate the costs, benefits, and potential risks associated with refinancing, considering factors such as interest rates, closing costs, loan terms, and their long-term financial goals. While refinancing can offer benefits such as lower monthly payments or shorter loan terms, it's not suitable for everyone, and individuals should weigh their options thoughtfully to make informed decisions aligned with their financial circumstances and objectives.

Important

Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

How to Choose a Lender

  1. Make sure to confirm whether the lender is licensed to operate in your state. You can verify this information with your state regulator or attorney general.

  2. Check if the lender is a member of a reputable association, such as the Community Financial Services Association of America. Membership in such organizations may provide an extra level of reliability.

  3. Carefully review all the terms and conditions of your payday loan contract.

  4. Thoroughly examine the interest rates on payday loans and ensure that your contract includes a detailed breakdown of the total cost of the loan.

  5. Take advantage of your right of rescission. Usually, you can rescind the loan within three days after signing the agreement. Alternatively, there is typically a "cooling-off" period, which allows you several days to thoroughly review the contract before making an informed decision to enter into a consumer loan agreement based on the terms specified by the lender.

  6. Choosing a payday lender is a significant decision that demands careful consideration and a good understanding of how such organizations operate.

Additional resources

FAQ

What is the difference between a loan modification and refinancing?

Loan modification and refinancing are two distinct methods for adjusting mortgage terms, each serving different purposes. While refinancing involves replacing an existing mortgage with a new loan, typically to obtain better terms or access equity, loan modification entails altering the terms of the existing mortgage agreement without obtaining a new loan. Refinancing often involves changes such as adjusting interest rates, loan durations, or loan types, while loan modification typically focuses on modifying payment schedules, interest rates, or principal balances to make the loan more manageable for the borrower. Both options can provide relief for homeowners facing financial difficulties, but they serve different needs and involve distinct processes.

Can I tap into home equity without refinancing?

Homeowners can tap into home equity without refinancing through alternative methods such as home equity loans or home equity lines of credit (HELOCs). These credit products allow borrowers to borrow against the equity in their homes while retaining their existing mortgage terms. Home equity loans provide a lump sum amount with a fixed interest rate and fixed monthly payments, while HELOCs offer a revolving line of credit that borrowers can access as needed, typically with variable interest rates. These options enable homeowners to leverage their home equity for various purposes, such as home improvements, debt consolidation, or major expenses, without the need to refinance their existing mortgage.

Does refinancing affect my credit?

Refinancing can impact credit scores, albeit typically temporarily and to a limited extent. When applying for refinancing, lenders conduct credit inquiries to assess the borrower's creditworthiness, which can result in a slight decrease in credit scores. Additionally, closing the existing mortgage and opening a new loan can affect credit scores by altering credit utilization ratios and average account ages. However, these effects are usually minimal and temporary, and over time, responsible management of the refinanced mortgage loan, such as making timely payments, can help improve credit scores.