Rate Reduction:
This is the most popular type of refinancing. In these times of large loan amounts, it is probably wise to refinance if you are saving a 1/4 of a percent or more in your interest rate. To determine if you are saving money, take your current payment and subtract the new payment from it to determine your savings per month. Then, divide your savings per month by your closing and/or refinancing costs to determine your break even point. If you plan to stay in your home longer than it will take you to break even, you should proceed. Arrowhead Financial Group offers customers a no-cost option so you can start saving immediately.
Term Reduction:
A mortgage can be amortized in many different terms: 30, 20, 15, or 10 year terms. In most cases, the shorter the term, the lower the interest rate. By lowering your interest rate and lowering the term, in many cases your payment will not change or can even be lowered.
Loan to value is a very important factor in this type of refinance. Most lenders will allow cash out to 80% of the value of the home. Some lenders limit the cash to the borrower. It is imperative that you ask certain questions such as the maximum loan to value and maximum cash allowed. One must also have a valid reason for cashing out and submit your reason in writing. The most common reasons for cashing out are home improvements, debt consolidation, or divorce buy-out.
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