What Happens When You Refinance Your Mortgage

Refinancing a mortgage means replacing your current home loan with a new one, usually with better terms. You're not paying off your house early, just restructuring how you repay it. 

Here’s what the refinance process generally looks like:

• Choose a lender. You can stick with your current mortgage provider or explore others. Comparing rates and terms is key. Some credit unions may offer lower rates or fewer fees than other lenders, so shop around.
• Apply with documentation. The process is similar to your original mortgage. Be prepared to provide pay stubs, W-2s, bank statements, and other financial details so your lender can evaluate your application.
• Get an appraisal. A new home appraisal helps your lender determine current value and available equity, which can impact your loan terms.
• Close the loan. If approved, you’ll sign new loan documents. Once finalized, your old mortgage is paid off and replaced with the new loan..

Note: Refinancing can cause a small, temporary dip in your credit score. A hard inquiry during the application process may lower your score by a few points. However, making on-time payments on the new loan can help your score recover and even improve over time.

Factors to Consider Before You Refinance 

Before you move forward, take time to evaluate whether refinancing supports both your short- and long-term plans. Here are some key factors to keep in mind:

• Upfront costs and fees. Closing costs typically range from 2% to 5% of the loan amount. Make sure the savings from refinancing justify these expenses over time.
• How long you’ll stay in the home. If you plan to move soon, you may not stay long enough to benefit. Ideally, you should remain in the home long enough to break even on the cost of refinancing.
• Your home equity. If you have at least 20% equity, you may qualify for better rates and remove PMI. With less equity, you could still refinance, but options may be limited.
• Your financial profile. Lenders will assess your credit score, income, debt, and employment history. A strong financial profile increases your chances of approval and favorable terms.

Is There a Magic Number for Refinancing?

There’s no single rate that signals it’s time to refinance. In many cases, even a drop of  1% could lead to real savings, depending on your loan balance and closing costs. Rather than focusing on a single number, think about what you hope to achieve: lower payments, a shorter term, or cash out for big expenses. 

A common rule of thumb is the “2% rule,” which suggests refinancing only when your new rate is at least two percentage points lower than your current one. This guideline can be helpful, especially if you plan to stay in your home for several more years, but it’s not a hard requirement.   

Another helpful way to evaluate when to refinance a mortgage is to calculate your break-even point—the number of months it will take for your monthly savings to recoup your refinance costs. For example, if you spend $3,000 to refinance and save $150 per month, you’ll break even in 20 months. If you expect to remain in your home beyond that point, refinancing could be a sound financial move.

Refinancing isn’t a one-size-fits-all solution. Understanding how to refinance and when it makes sense will help you make confident, informed decisions. Source

Reasons To Increase Your Home Value

Your home is likely one of your largest assets, so increasing its value contributes to your overall net worth. Raising your home’s value has other benefits, as well, such as:

• More profit when you sell: A higher home value translates to a higher asking price when you put the place on the market.
• More tappable home equity: If you need cash, you can borrow against your home’s equity. The more your home is worth, the more you can potentially borrow.
• Some protection from market swings: If your home has a higher value, you might be able to guard against major dips in the housing market.
• No more mortgage insurance: If your home appraises for a higher value, it increases your equity stake, potentially to a level that leads to the elimination of private mortgage insurance premiums.
• Aesthetics and function: Upgrades increase your enjoyment and use of your home.

Source

NMLS ID 394275 | DRE ID 01769353

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Thank you for your service,

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

margeate@workhomeloans.com

NMLS ID 394275 | DRE ID 01769353

What Is a Mortgage Interest Rate?

A mortgage rate is the cost of borrowing money to buy a home. When borrowing money from a lender to purchase a house, you must repay the amount borrowed plus interest, which is calculated using the mortgage interest rate.

A higher rate means it is more expensive to borrow money, and a lower rate means borrowing money is more affordable. This is why borrowers prefer low mortgage interest rates. The lower the rate is, the less you may pay each month in interest expenses. This means a lower monthly mortgage payment and a lower interest expense over the course of the loan.

Are Mortgage Rates and Interest Rates the Same?

“Interest rates” is a broad term that can describe the cost of borrowing money for any loan type. You could, for example, have an interest rate on an auto loan, student loan or personal loan. The term “mortgage rates” specifically refers to the interest rates on home loans.

What Factors Determine Mortgage Rates?

Mortgage rates are based on the perceived risk of lending[1]. The greater the risk to the lender, the higher the mortgage rate to offset that risk. And several factors determine risk, including general economic conditions, specific lender practices, and individual borrower qualifications.

The factors that influence mortgage interest rates include the following.

The Federal Funds Rate, Set by the Federal Reserve

While the Federal Reserve does not directly set mortgage rates, it does set the federal funds rate, which is the target rate for banks borrowing from one another in the short term. This rate changes in response to economic conditions such as inflation or market stagnation.

And many lenders use this rate to determine their prime rates for different loan types, from auto loans to credit cards to home loans.

Your Credit Score

A high credit score indicates that a borrower has used debt responsibly in the past, making payments on time and keeping debt manageable. This means borrowers with higher credit scores may qualify for lower mortgage rates than borrowers with lower credit scores.

The Loan Type

Different mortgage loan types are available to homebuyers and, because of their differing risk levels, mortgage rates can vary by loan type. As one example, the U.S. Department of Veterans Affairs (VA) backs VA loans. Because this makes it less risky for the lender than other mortgage loan types, a VA loan may come with a lower interest rate.

The Loan Amount

A higher loan amount might result in a higher interest rate, particularly if the borrower requires a jumbo loan, in which the loan amount exceeds the maximum loan limits for a conventional loan.

The Down Payment Amount

The greater the down payment amount, the more equity there is in the home. Equity is the buyer's ownership share of a property, as opposed to the share of the property financed by debt. The greater the equity, the lower the risk for the lender. So a higher down payment can lower your rate[3].

The Loan Term

A shorter loan term allows the lender to recoup its investment in the loan more quickly. This reduces the lender’s risk and can result in a lower interest rate than a loan with a longer term[3].

The Mortgage Rate Type

The mortgage rate type can also affect your rate amount. To understand how and why, we need to explore the common types of mortgage rates, which we will do in the next section.

Source

Big Bank vs. Mortgage Broker: What's the Difference?

Yes - we can compete with Big Banks and win on terms, pricing and service in most situations!! I get this question often…so throwing out to you differences!

Are you planning to buy a home and wondering where to get your financing? Here's a quick comparison to help you make an informed decision!

**Big Bank**

• Convenience: If you already have accounts with a big bank, it might seem convenient to get a mortgage with them.

• Reputation: Big banks have established brands and reputations.

• Limited Options: Big banks typically offer their own mortgage products, which might limit your choices.

• Stricter Criteria: Banks often have stricter lending criteria, which can make it harder to qualify for a loan.

**Mortgage Broker**

• Wide Range of Options: Mortgage brokers have access to a variety of lenders and mortgage products, giving you more options to find the best rate and terms.

• Personalized Service: Brokers work for you, not the lender, so their goal is to find the best mortgage for your unique situation.

• Flexible Criteria:  Brokers often have relationships with a variety of lenders, some of whom may be more flexible with their lending criteria.

• Negotiation Power: Brokers can negotiate on your behalf to get better rates and terms than you might get on your own.

Your Dream Home is Within Reach!  As a dedicated mortgage broker, I'm here to help you navigate the complexities of home financing and find the best mortgage for your needs. Let's work together to make your homeownership dreams come true!

NMLS ID 394275 | DRE ID 01769353

Home Buyer Tips: Do's and Don'ts

The Do’s When Financing A Home

These are suggestions not necessarily recommendations. Please consult with you Loan Officer for more details.

• Get pre-approved for a loan
• Set a realistic budget
• Have all your required documentation in place
• Prepare to verify your income and assets
• Let us know if your down payment is a gift
• Continue to pay all of your bills on time
• Make sure that your earnest money check comes from funds withdrawn under your own bank account
• Start shopping for homeowners insurance
• Contact us if you think any of these don’ts shared below are unavoidable. We can help you determine the right course of action that may provide the least impact on your home loan process.

The Don'ts When Financing A Home

• These are suggestions not necessarily recommendations. Please consult with you Loan Officer for more details.
• Change jobs, quit your job or become self-employed
• Buy or trade in a vehicle
• Increase debt/balances or miss payments
• Spend money you have set aside
• Omit debts or liabilities from your loan application
• Buy furniture or appliances
• No new loans, credit cards, or lines of credit
• Change bank accounts
• Co-sign any loan
• Use cash for your down payment or earnest money
• Wire closing funds (Until you speak directly with our office for information first)

Source

5 Dos & Don'ts - Applying for a Home Loan

1. Do: Check on the status of your credit.

Do this as early as possible in the planning process – as much as a year in advance if you think there could be negative items impacting your credit score. This will give you time to pay off any outstanding debt to improve your score if needed.

2. Don't: Immediately begin buying furniture and accessories once your loan is approved.

Your credit will be monitored throughout the process, so be mindful of your spending and avoid opening any new lines of credit during this time.

3. Do: Have your down payment ready.

Before the housing market crashed, it was easier to secure a home loan with little or no down payment, but things have changed. Although some first-time home buyer programs offer payment options requiring little money down, increase your chances of getting a home loan by planning to put down at least 10 percent of the cost of the home.

4. Don't: Quit your job.

It's important to show how responsible you are when you're applying for a home loan. Lenders want to see a strong, reliable work history coupled with responsible spending before they're ready to help you get approved for a home loan, so stay put in your job during the application and closing process.

5. Do: Have your budget in mind.

You need to know exactly how much you can afford to spend each month on mortgage payments. Industry experts suggest a good rule of thumb is to keep your house payment below 25 percent of your whole income.

Approximately 31 percent of today's home buyers are first-timers.  Source

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Work and Associates Home Loans

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

margeate@workhomeloans.com

NMLS ID 394275 | DRE ID 01769353

So You're Ready To Buy A House? (Now What?)

 

Downsides of Home Equity Lines of Credit

• The rate is adjustable and tied to prime
• It can go up significantly during periods of inflation
• Rate adjustments can be frequent relative to other ARMs (multiple times per year)
• Higher interest rate caps

There are a number of reasons to steer clear of HELOCs. The main reason being that it’s an adjustable-rate mortgage.

Whenever the Fed moves the prime rate, the rate on your HELOC will change.

Usually it’s only .25% at a time, but the Fed raised the prime rate about 20 times in a row since 2004, pushing the rate from 4% to 8.25%, before it began to move the other way.

Then recently raised rates 11 times from early 2022 to mid-2023, pushing prime up more than five percentage points in the process.

So your interest rate can fluctuate greatly, even if the Fed moves prime in so-called “measured” amounts.

HELOCs generally adjust either monthly or quarterly, depending on the terms specified by the lender.

Check your paperwork so you know what to expect after the Fed makes a move.

Also note that HELOCs don’t have periodic interest rate caps like standard adjustable-rate mortgages, just lifetime caps, so the rate can fluctuate as much as the Fed allows it to, up to 18% in California (it varies by state).

Term of a Home Equity Line of Credit

• Typically begins with a 5-10 year draw period
• Where you can make interest-only payments each month
• Followed by a 10-20 year repayment period
• Where you must pay back principal and interest to satisfy the loan

A HELOC normally has a 25-year term, with a draw period and a repayment period. The draw is typically the first 5 to 10 years, followed by the repayment period of 10 to 20 years.

But it can vary, with some HELOCs offering longer draw and repayment periods to lessen the payment burden. And some shorter draw periods between 3-5 years.

During the draw period, the homeowner can borrow as much as they’d like within the line amount, and can make interest-only payments on the amount drawn upon.

There is usually a minimum payment, just like a credit card.

After the draw period, the borrower must pay off the principal of the HELOC, along with the interest. This period is known as the repayment period.

Typically the loan balance is broken down into monthly payments, but there could also be a balloon payment because of the way the loan amortizes.

Also note that some HELOCs don’t have a repayment period, so full payment is simply due at the end of the draw period. Source

Adjustable-Rate vs. Fixed-Rate Mortgage: Which Should You Choose?

In today’s high-rate environment, borrowers are looking to land the lowest possible home loan rate. While most choose fixed-rate mortgages, many consider adjustable-rate mortgages (ARMs) too, which typically offer lower interest rates for an initial period. These days, ARMs are the most popular they’ve been since 2022, accounting for about 10% of all mortgage applications, according to the Mortgage Bankers Association. Which is better for your situation: a fixed-rate or adjustable-rate mortgage?

What is an adjustable-rate mortgage (ARM)?

An adjustable-rate mortgage, just like it sounds, has a mortgage interest rate that adjusts — or fluctuates across its loan term.

Most ARMs today are known as “hybrid ARM” loans because they have a fixed interest rate for an initial amount of time, followed by adjustment periods — when the interest rate can go either up or down. The initial fixed rate on an ARM is typically lower than what you would pay with a fixed-rate loan.

Some common ARM terms lock in your rate for five, seven, or 10 years and then adjust it annually after the fixed period. Those are often called 5/1, 7/1, or 10/1 mortgages. Other ARM terms are available, such as a 7/6 ARM, which indicates you’d have a fixed rate for seven years and then the interest rate would adjust every six months.

Most ARMs include caps, or limits on how much your interest rate can increase or decrease during the adjustable period. Usually, there will be an initial cap on how much your mortgage can change at the first adjustment, a periodic cap that restricts how much your rate can change at each subsequent adjustment, and a lifetime cap that limits how much your interest rate can change during your entire loan term.

For example, if your rate during the introductory period is 6% and you have a 2/1/5 cap, your rate could only go as high as 8% or as low as 4% at the initial adjustment. Each subsequent adjustment could only change your rate by a maximum of 1%, and overall, your rate could only change by 5% over the loan's lifetime, so your maximum possible interest rate would be 11%.

The exact interest rate fluctuations an ARM will see depend on the margin the lender has assigned to the loan and the benchmark index rate the loan is tied to. These should be detailed in your loan documents.

For example, a benchmark could be an index such as the Secured Overnight Financing Rate (SOFR), and your margin could be 2% — meaning your rate would be two percentage points above the SOFR rate.

Most ARMs are based on a 30-year loan term. Some mortgage lenders offer a 15-year ARM — it’s just rarer.

What is a fixed-rate mortgage?

A fixed-rate mortgage is less complicated than an ARM and, therefore, easier to fit into a financial plan. Unlike an ARM, a fixed-rate mortgage has the same interest rate for the life of the loan. That means your mortgage principal and interest payments stay the same until you either refinance your loan, sell the house, or pay the balance in full. The most common fixed-rate mortgage terms are 15 and 30 years, but some lenders offer 10- and 20-year loans or individualized loan terms.

A quick note: With both fixed- and adjustable-rate mortgages, your monthly payment can change if your escrow costs (which cover property taxes and home insurance premiums) or your mortgage insurance costs change. This has nothing to do with what type of interest rate or loan you have, though.

The biggest advantage of an ARM is that it offers a lower initial interest rate and monthly payment than a fixed-rate loan typically does. And if mortgage rates decline later, you could see your rate and payment fall.

On the downside, ARM rates and payments are uncertain, and you could find yourself with a higher rate and payment down the line. Because of this, ARMs can be hard to budget for and put you at a greater risk of foreclosure (because you might have trouble making payments).

Fixed-rate mortgage loans have the advantage of stable rates and payments, which makes long-term budgeting simpler. However, the disadvantage is that interest rates are higher for fixed-rate loans at the outset, and if mortgage rates decline, you would need to refinance the mortgage to take advantage of those lower rates. Source