Mortgage Refinance Product Chosen Depends on Need

By: | August 16th, 2012

Mortgage refinances continue to be a large part of mortgage applications this year as more and more borrowers are seeking to lower payments by obtaining the current low mortgage rates. While some will be refinancing for the first time, many others have repeatedly refinanced as rates have fallen. While a regular refinance has the same guidelines as a home purchase loan, the mortgage refinance product that is chosen depends on the need of the individual.

Many borrowers today choose the rate and term mortgage refinance. This product is simply a refinance to lower the mortgage rates, a change in the length of the loan or both. With this product, any available equity is not taken out as cash or for debt consolidation. Closing costs can be added to the mortgage, but there is a limit of $2,000 cash back at closing. In today’s market, this is the most popular and simplest type of mortgage refinance.

With a cash out refinance, in addition to lower mortgage rates or loan terms, borrowers take the equity in the home as cash for other needs they may have or to combine a first and second mortgage. The loan amount increases from the original amount with this type of mortgage. While this was popular prior to the housing crisis, it is no longer used as often since the decline of home values. Guidelines for the cash out refinance are often stricter than a rate and term because of the higher risk of the loan.

As home prices fell, the cash in mortgage refinance has become increasingly popular. With this type of refinance, the borrower brings cash to the closing in order to reduce the loan amount. For some borrowers, this is the only way to refinance to lower mortgage rates. For others, reducing the mortgage amount may eliminate the need for private mortgage insurance. In some cases, lenders offer better deals when the loan to value is below 80%.

No matter which mortgage refinance is chosen, the guidelines for the traditional refinance are the same as those for a home purchase loan. Income, employment and asset documentation is required and will verified by the lender. Borrowers must also have a history of good credit that shows on time mortgage payments. An appraisal is also required and will help determine the amount of the new mortgage and loan to value ratios. In some cases, borrowers can receive a title credit if they have the original title documents available. Any previous documents that the borrower can furnish the lender may help to save some expenses, such as a survey that may be necessary in some cases. surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.


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"I was looking at a 4.375% with Wells Fargo, my local bank, before stumbling upon via a google search. They hooked me up with a longstanding savings and loan bank of which I closed on a 30 year fixed rate of 3.75% with. I'd recommend anybody looking at refinancing or buying a home give free rate a shot."

-Joe Klien, Detroit, MI