Refinance Your Home Loan

How the Refinance Process Works

First step to refinance your home mortgage: Gather documentation. As an independent mortgage consultant, I will tell you what items to collect and go over all of your documentation with you before we submit it to underwriters. I will analyze these materials, shop around for the loan that is the right fit for your situation, and then submit your materials.

100 Lenders

I have access to over 100 lenders who have a variety of loan products. This gives me a lot of latitude for finding the right fit, the right rate for your situation, and the loan you are most likely to qualify for.

Lending Relationships

Because I have relationships with some lenders that go back for decades, I can move loans more quickly up the chain of command in underwriting than a newbie might.

My underwriters also collaborate with me to address any issues with documentation or data and find solutions that will enable your loan to be approved.

By contrast, institutional lenders employ a relatively faceless, impersonal assembly-line process.

Refinance Appraisals

With the recent property appreciation of the past few years, many of the refinance loans I am closing also don’t require an appraisal. The investor/lender underwriting system may agree with the valuation I input into the system, using various automated valuation processes, that then allow for a no-appraisal refi.

Complicated Loan Situations

Is your situation COMPLICATED? I am very good at and love the challenge of working my way through complicated deals!

Read my blog post on Tough Loan Cases for an example of the challenges we can overcome. Even well qualified borrowers can be declined by banks. We found a great solution for this borrower who had been declined at least twice by other lenders.

No Application Fee, No Commitment

There is no application fee with me, nor any monetary commitment. This part of the process is simply a no-cost opportunity to be in line to capture the rate you need when you’re timing your loan with an eye to rate fluctuations.

Why Refinance Your Home Loan Now?

So, let’s talk about what makes refinancing attractive right now. You might be asking:

Rates are dropping, should I refinance my loan now?

There are many aspects to this question, as you can imagine!

Fed Rate Cuts

If it was a recent Fed rate cut that brought you here, I have an important clarification:

Mortgage loan rates are not tied to the Fed.

One does not automatically or directly affect the other in a clear way.

And furthermore: There is no uniform reaction by the mortgage lending market in the short term when the Fed cuts or increases its rate. Over the years, Fed rate cuts have sometimes meant that mortgage rates dropped, and at other times, that rates were not affected.

Prime Rate

Fed rate cuts do not directly affect mortgage rates. They are an indication of what the Fed is doing to help stimulate the economy, but the Fed Funds rate directly affects only one consumer interest rate, which is the Prime rate.

The Prime Rate is not tied to the vast majority of mortgage products. It only affects revolving lines of credit like credit cards and Home Equity Lines of Credit, HELOCs.

Consumers who follow the media on Fed rate cuts and think that mortgage rates will fall when the Fed cuts its target rate are not seeing the true nature of mortgage rates. The media doesn’t explain the lack of correlation between the Fed rate cuts and mortgage rates. It is true that many times when the Fed is cutting its target rate, mortgage rates also fall.

Falling mortgage rates have much more to do with how traders are moving money into the bond market as a result of the reasons that the Fed is cutting its target rate to begin with, not because of the Fed rate cut, itself.

For more discussion of how changes to the Fed rate influences mortgage lending, follow my blog posts tracking the bond market, consumer debt, and other interest rates.

My blog post Refinancing Goes Nuts! gives a historical example from September 2019.

Cash Out — HELOC vs. Refinance

Is a home equity line of credit (HELOC) or a refinance of your principal mortgage the better option for you when you want to take cash out?

Call me to discuss your situation! We may decide to do a “rate and term” refinance for you. This means we are simply reducing the interest rate and not taking any cash out of the property’s equity. In that case, we have a very high probability of avoiding an appraisal, if that is one of your goals.

In addition to reducing the rate, many borrowers will want to take advantage of a low rate environment to take cash out of their equity.

Uses for a Cash Out Refinance

A cash-out refi may be used to

• • fund home improvement projects
  • pay off debts
  • fund your portfolio, including your retirement
  • pay for kids’ college tuition

Uses for Home Equity Line of Credit

If you simply want to access your equity when you need it, without an immediate need for cash, a HELOC with a credit limit you can borrow against can be a good solution.

When we are not in a moment of a rate drop, many borrowers who want to access the equity in their homes are more inclined to take out a Home Equity Line of Credit (HELOC), in the second position behind their existing first mortgage.

Differences Between HELOC & Cash Out Refinance

There are a few major differences with using a HELOC to access equity versus doing the first mortgage, cash-out refinance:

• The interest rate on a HELOC is adjustable and can go up and down with the Prime Rate.
• Also, the monthly interest paid on a HELOC in the second position is no longer tax-deductible — please check with your tax advisor to confirm this; mortgage lenders, like myself, are not licensed to give tax advice.
• In contrast, the interest paid on mortgages in the first position may be tax-deductible.
• The monthly interest owed on a HELOC is paid on any HELOC balance each month, like a credit card.
• As the balance goes up and down, the amount of interest owed also fluctuates.

Qualifying

Another difference is that it’s harder to qualify for a HELOC in the second position to an existing first mortgage than a cash-out refinance in the first position. Investors and lenders perceive the HELOC in the second position to be of higher risk. In a foreclosure situation, the lender in the first position is safer, because they get paid first when the property is sold.

Effect of Falling Fixed Rates

When we see 30-year fixed rates are falling to below 3.875% APR as they did last year, or 3.25% APR as they are in early 2020, then, in many cases, taking cash out in a first mortgage refinance is more attractive compared to doing it via a HELOC.

Subscribe

You may also wish to subscribe to my newsletter to receive my in-depth and up-to-the-minute interpretations of changes in the bond and loan markets.