Cash Out Refinancing vs. Home Equity Loans – What’s the Difference?

Your home is one of your most important investments, and in many cases, it can be leveraged as a source of funds if you are ever in need of some quick cash.  For example, this can be a great way to get funds for a round of home improvement upgrades – reinvesting the capital right back into your property.  Or, the home’s equity could be used to consolidate your credit cards or other debt onto a lower-interest loan.

There are a few different ways this could happen, with the most common options being either cash out refinancing or getting a home equity loan.  This is a big decision, so it’s important to weigh the options and choose the one which works best for you.

Home Equity Loan or Cash Out Refinancing?  What You Need to Know

  1. Home Equity Loans

Simply put, “home equity loan” is another way of saying “second mortgage.”  Since your home is an asset worth a substantial amount of money, it can be put up as collateral against a new loan.  Generally, this loan can be almost as much as the total amount of equity in your home.  (That is, the fair market value of your home minus any debts attached to it.)

While this is the traditional option for leveraging home equity, it has one major drawback: rather than one monthly mortgage payment, you now have two.  And if you fall behind on either, your home could be at risk.

  1. Cash Out Refinancing

Cash Out Refinancing is a different way to restructure your debts if the amount of equity in your home is substantially more than your remaining mortgage payments.  In a cash out loan, you refinance your original mortgage for more than the mortgage’s value, then take out the difference in cash.  For example: if you still owe $100,000 on your existing mortgage, but need $25,000 for home improvements, you would end up with a $125,000 mortgage at the end of the process.

So, unlike a home equity loan, you end up with only one mortgage payment – but that one payment will be larger than before, depending on the amount you cash out.

Which Option Is Right for You? The Mortgages Diversified Team at Summit Mortgage Corporation Can Help

Deciding between the two options is tricky, and usually, fees will be the determining factor.  To make an informed decision, you need to speak with experienced home refinance expert at the Mortgages Diversified Team at Summit Mortgage Corporation for.  Click here to learn more.

 

Is Your Mortgage Interest Rate Increasing Every Year?

If you’re on an adjustable rate mortgage (ARM) and it seems like your rates keep going up, you aren’t imagining things.  They are.  For the past decade, ARM rates have been going upwards steadily, and there’s currently not much reason to think the trend will change.

This means you’re paying more money each month while getting nothing of substance from it.  This isn’t equity going into your home, it is money vanishing from your life.

Fortunately, there are alternatives for dealing with an adjustable rate mortgage when interest rates have gotten out of control: refinancing.  Many homeowners are finding that it makes sense to refinance into a fixed interest mortgage and end the cycle of increased ARM rates.

What It Means to Refinance Your Adjustable Rate Mortgage

If you currently have an ARM, it is absolutely possible to refinance and move that debt into a fixed interest mortgage instead.  As the name suggests, the interest rate on a fixed interest mortgage never changes.  It is exactly the same on year thirty as it was in year one.

It’s generally best to look into fixed interest mortgages when their interest rates are relatively low.  Right now, that is the case.  Further, with ARMs continuing to go up, there’s a lot of reason to think that refinancing would be a smart move.

Moving to a fixed interest rate also means more financial stability for you.  Your monthly mortgage payments would become predictable from month to month.  (note: payments will change as taxes and insurance change, so they won’t be exactly the same each month) This means easier budgeting, and no more worrying about where to find extra cash if your ARM rate goes up again.

However, there are still a few things to consider:

  • Refinancing a fixed interest rate is relative to refinance an ARM rate.  As long as there is a tangible benefit to the borrower in reducing their interest rates, fixing an ARM rate or cash out for consolidation, refinancing your existing home mortgage is processed the same in all cases.

Our number one goal is to educate consumers on their refinancing options so they can understand the benefits in doing so.

 

 

The Mortgages Diversified Team at Summit Mortgage Corporation

You need expert advice to know if refinancing an adjustable rate mortgage is right for you.  Click here to learn more!

 

Cash-Out Refinancing Versus a Home Equity Loan

If you’re looking to extract value from your home to pay for new additions or to consolidate debt, you generally have two options: cash-out refinancing or a home equity loan. Our team at Mortgages Diversified can help you to understand the full range of benefits each option offers and decide which is right for you.

What is a home equity loan?

A home equity loan is a financial product best suited to those with significant equity in their property. You can determine your equity level by subtracting all home debts to the fair market value of your property. The loan process involves securing your loan against the value of your equity in the property. Most lenders will allow you to borrow up to 90% of your equity. When the home equity loan process is completed, you have two mortgage loans. The original, which remains unchanged and the second loan, which is based on the home equity loan rate agreed with your lender.

What is a cash-out refinancing?

A cash-out refinancing does not require you to take out a new second loan. The product allows you to refinance your current mortgage loan based on your home equity. The cash-out refinancing allows you to extract value from your property while negotiating a new term, rate, and repayment schedule. You will receive the borrowed funds in a lump sum from the lender. While every other home equity loan option creates a second mortgage, a cash-out refinancing is a great option for simply extending your current mortgage under new terms.

Important elements to consider

When making your decision whether to choose a home equity loan or cash-out refinancing, there are generally three elements to consider:

  • The size of the loan

Generally, the higher the amount you are looking to loan, the more cash-out refinancing makes sense. This is because the cash-out refinancing process involves several additional charges, such as escrow and title charges, which will be a smaller percentage with a larger amount.

  • Your current home equity

Those with little equity might not have the option of either of these loans. With more equity comes a greater range of financing options.

  • Current interest rates

With rates potentially rising in the long-term, analyze the value of variable versus fixed rates in selecting your financing product.

The Mortgages Diversified Team at Summit Mortgage Corporation

To learn more about the options available for your lending requirements, please call our team now for a consultation.

What You Should Know About Adjustable Rate Mortgage Options

With an adjustable rate mortgage, you’re often at the mercy of the financial markets. In a rising mortgage rate environment, you could find yourself paying hundreds of dollars more per month for your home mortgage. Our team at Mortgages Diversified can help alleviate the stress of a rising interest rate environment. Here, we’ll delve into your adjustable rate mortgage options.

Discuss refinancing

If you are finding that your adjustable rate mortgage has become too costly, it might be time to discuss the refinancing process with your lender. Most lenders will be more than happy to accommodate changes to your rate in order to ensure that payments are made on time and according to the agreed upon schedule. Before refinancing, make sure you have access to the required paperwork and that your credit rating is high enough to ensure a lower rate on your new mortgage.

Analyze costs

When exploring your adjustable mortgage rate options, make sure you have a full understanding of your housing costs. For example, find out how much you’re paying per month and whether you can afford to pay more over a shorter period at a higher rate. Review your savings levels to determine the potential value in paying down your mortgage. Always speak with an expert about the rising interest rates and the impact these rates might have on your mortgage.

Avoid taking out further loans

Outside of your mortgage, this is not the ideal time to take out further loans using your mortgage as collateral. With the rising interest rates across the country, it’s now time to consolidate your debt levels and make a firm plan for your financial future. You can look to debt consolidation and other options to refinance your debts repayments at lower rates before they rise in the coming year.

While interest rates remain stable, they are historically low and will likely rise in the short-term. Make sure you have the information you need to protect your financial future by consulting with our team at Summit Mortgage Corporation. To discover more about refinancing and your full range of options, call our team today.

A Guide to Refinancing Mortgage Loans

Refinancing mortgage loans can ensure you have more money available each month to pay your other obligations. Many homeowners are now struggling to pay the costs of their current mortgage and require a path forward to minimize their monthly spending.

In this post, our team will provide a guide for reducing monthly mortgage costs.

Extend your repayment term

One option for refinancing a home mortgage loan is to extend your repayment term. Securing a new 30 year term can reduce your payment and provide increased cash flow. While the overall cost of credit would increase, your monthly payment can decrease if you refinance to a new 30 year loan. This is a good option to consider for those that are struggling to meet their monthly payments.

Discuss income and credit changes with your lender

Your lender may be able to help you with refinancing your mortgage by working with you on a new term options. Perhaps you’ve recently changed jobs and would like to pay more per month for a shorter term, or capitalize on your higher credit rating and pay less interest each month. Contact your lender to review your options and find out if you can consolidate your costs over the coming years.

Make additional payments toward the principal

Your principal mortgage amount can be reduced by making additional payments throughout the term. When you have additional income, you can choose to spend this income on your mortgage and reduce your interest costs over the life of loan. Reducing your balance through extra payments towards the principle will lower the cost of interest on your loan. As you work through the term your payments will decrease as the balance decreases.  So, make sure you work with your lender on a plan to pay down the principal amount.

Rent out part of your home

One rarely considered option is to rent out part of your home for additional income. This option is ideal for those with a finished basement space they rarely use. You can rent out the basement as an additional bedroom in the home and use the rental income to pay down your mortgage. Many find this strategy gives them significant financial freedom as they build their savings.

To explore further options for reducing your monthly mortgage costs, contact our team today!

 

What You Should Know About Refinancing Home Loan Rates

When taking on the refinancing of your home loan, in order to reduce your rates, it’s important to review the marketplace and speak with experts about the latest options. Our team at Summit Mortgage Corporation has many years of experience guiding clients on mortgage refinancing and in this new post, we’ll explain what you need to know about refinancing a home loan.

Your debt-to-income ratio

Your debt-to-income ratio should be a leading consideration when refinancing home loan rates. The data shows that overall debt-to-income levels should be less than 45%, so you might wish to pay off some of your debt before beginning the refinancing process. Your lender will have strategies to consolidate or eliminate debt using your home equity and in many cases you can pay off debt through refinancing your mortgage loan.

The costs of refinancing

The cost of refinancing a home loan can be anywhere between 3-5% of the home loan total. But there may be ways in which you can reduce this total cost or include it in the mortgage payments you’re already making. Some lenders offer no-cost refinancing, but this may lead to you paying a slightly higher interest rate to cover your costs. Costs can be offset and recouped by savings gained through refinancing and rarely do borrowers pay out of pocket for mortgage costs.

The rates vs. the term

The term of the mortgage should be a leading consideration when establishing mortgage value. To reduce your monthly costs, you’ll want to have the lowest interest rate and the longest term possible. Make sure that both the term and the interest rates match your goals so that your financial position remains strong.

The PMI

When homeowners have less than 20% equity in their home, they pay private mortgage insurance (PMI) to safeguard the financial investment of the lender. If you’re refinancing your home loan at new rates, you may find that your home has lost value and you now have less than 20% equity in the property, requiring you to pay PMI. Be sure you discuss potential PMI costs with your lender as you consider refinance options.

Our trusted and experienced team at the Mortgages Diversified Team at Summit Mortgage Corporation can help guide you in saving money on your home loan refinancing process. To discover more about this topic, call us today.

 

Discover the Latest Mortgage Advice from Our Diversified Lenders

When you’re in the process of applying for a mortgage, you must work with your lender and find ways to enhance your credit to achieve the ideal mortgage loan. Our team of Mortgages Diversified at Summit Mortgage Corporation has decades of experience in the industry. In this new post, our diversified lenders will help you improve your chances of getting the optimal mortgage by highlighting steps for improving your credit.

Establish a payment plan for loans

Make sure that you have a clear payment plan for your current credit obligations. This means resolving credit card debt and establishing credit limits that allow you to safeguard your savings for the coming months. Take a look at how you are paying your current credit cards and determine areas in which you can make significant savings. The card with the highest interest rate should be your priority when establishing a payment plan. The less debt you have going into the mortgage lending process, the better.

Maintaining credit through the lending process

Once you have been approved for a loan, or have a refinance in process, it is important to not use your credit cards or credit accounts. You don’t need to close your cards, just do not use them until your loan is closed. You don’t want an increase in credit usage when working with a lender. Applying for new credit can negatively affect your credit, which you want to avoid during this process. Wait until your loan is closed and funded before using credit to buy furnishings or make upgrades to your home.

Review your credit reports

In establishing your options as a borrower, the diversified lenders will review your credit report to determine if you have any late payments or outstanding debts. If you have any debts that have gone to a collection service, this will show up on your credit report. Make sure that these debts are paid before visiting a lender to look for a loan. If you review your credit report and find inaccurate information within the report, you can dispute it with the three main credit bureaus and eliminate the inaccuracy from the system.

Working with a trusted and experienced diversified mortgage lender in the application stage can help you find a property that meets your family’s needs. To learn more about the steps you can take today to begin improving your credit, call us directly.

 

Our Lenders Offer a Guide to Jumbo Mortgage Loans in 2019

The Federal Housing Finance Agency has recently announced that they’ve raised conforming loan rates for 2019. Now, in most counties across the country, the conforming loan limit for a single-family home will be $484,350, which marks an increase of $31,250 from the 2018 limits. The new rise in limits means that the federal government has raised the conforming loan limit three years in a row. Any loans above this amount are considered jumbo loans, and in this latest post, we’ll explain what you need to know about jumbo mortgage loans from your local lenders.

You’ll require a higher-than-average credit score

Most jumbo mortgage lenders will require you to have a higher-than-average credit score if you’re in the market for a jumbo loan. A credit score of between 700-720 is often the level lenders look to when evaluating a potential jumbo loan applicant.

You should have a low debt-to-income ratio

In order to pay off your jumbo loan according to the terms of your loan agreement, you must have a low debt-to-income ratio. Ensure that you reduce your debt before beginning the jumbo loan application process. Most lenders have a hard cap of 45% when reviewing debt-to-income ratios for jumbo loans.

You should have cash reserves for one year

Do you have enough cash in the bank to cover one year of mortgage payments on your jumbo loan? This is often a leading consideration for banks when evaluating clients and their loan potential. If you don’t have the free capital, you must be able to explain or show to the financial institution how you intend to pay the loan back within the required term.

You’ll need comprehensive documentation

The documentation you’ll need to show lenders when applying for a jumbo mortgage goes beyond the traditional documentation requirements for a conforming loan. You may be asked for several years of tax documents, as well as financial records related to your income.

Our lenders at Summit Mortgage Corporation can help you to find an affordable jumbo loan for your housing purchase. To learn more about our services, please call today.

A Guide to the Average Mortgage Rates Across Minnesota

By educating yourself on the interest rates in the national marketplace you can hone your strategy for refinancing your mortgage. Our team at Mortgages Diversified at Summit Mortgage Corporation is highly experienced in the mortgage marketplace and within our new post, we’ll provide a guide to understanding the average mortgage rates across Minnesota.

15-year fixed mortgage

Mortgage rates can change daily, so you need to be prepared for fluctuations that happen quickly in order to lock in on the mortgage rate you are looking for.  Fifteen-year mortgages tend to be a lower rate than longer-term mortgages, but will come with a higher monthly payment because you have less time to pay –off your investment.  The benefit is that you would be spending less on interest, which reduces the total cost of your property.

30-year fixed mortgage

All mortgage timeframes have fluctuations in the interest rates and need to be researched and monitored when you are interested in purchasing or refinancing a home.  With a thirty-year mortgage you would be spreading the cost of your investment over a longer period, thus it may make the most sense for your budget due to lower monthly payments.

What you need to know about mortgage rates

  • You’ll pay less per month with a 30-year mortgage

It’s important to note that, generally, you’ll pay less per month with a longer mortgage such as 30-year mortgage than you would with a shorter option.   But for the term of the loan, due to the interest paid, it is more expensive than a shorter term loan.

  • The principal is paid slowly in the beginning

At the beginning of your mortgage contract, the principal is paid off slowly and most of the payments will go toward interest. You can use an amortization calculator to find out how the numbers break down when evaluating your mortgage options.

  • Fixed rate mortgages are preferred when interest rates rise

In the current market environment, it’s thought that interest rates will continue to rise into 2019 and so those negotiating with the lender for a refinance now may consider a fixed rate mortgage their best option. That’s because the fixed rate will never rise and will allow the homeowner to save on their interest in the coming years.

  • Variable rate an option when selling in near future

However, a variable rate mortgage is often the preferred choice of homeowners looking to sell in the next few years. Variable rate mortgages allow for more of the principal to be paid down over a shorter time, ensuring a greater return when selling the home.

Our Mortgages Diversified Team at Summit Mortgage Corporation can help you capitalize on the latest low mortgage rates in Minnesota. To learn more about your options, call today.

 

Tips for Refinancing a Mortgage Loan

Refinancing a mortgage loan requires you to take into consideration your current financial situation and the marketplace to determine the best way to save on your loan. Our team at Summit Mortgage Corporation has decades of experience helping clients with refinancing their mortgage loan products, and in this post, we’ll explore our tips for the refinancing process.

Take on the process soon

Rates are expected to rise steadily over 2019. So, it’s important that you’re proactive and speak with a lender about refinancing your mortgage loan in the coming months.

Have your documents ready

You should be prepared in case market rates drop quickly over the coming months. Have your financial documents in order and be ready to speak with your local lender about the various loan options in the marketplace.

Tap into your home’s equity

One great option for many homeowners is to tap into their home’s equity with a cash-out refinance. This will provide you with more money for upgrading the home and increasing its value.

Work on your credit score

Take the time now to work on your credit score to prepare for the refinancing process. Your credit score will be one of the leading influences on how much interest you pay on your mortgage loan, and so it’s the ideal time to begin lowering your debts and building your income. Speak to your local lender about ways in which you can build your credit.

Refinance to an ARM

An Adjustable Rate Mortgage could be the ideal way in which to refinance for the years ahead. An ARM often comes with a lower initial interest rate which grows over time, and so if you’re considering selling in the near future, refinancing to an ARM can help you save on interest in the meantime.

Refinance to a short-term mortgage

Another option is to refinance to a short-term mortgage, which will allow you to save money on interest over the years ahead. The payment differences between a 30-year mortgage and a 10-year mortgage, are significant and opting for the shorter-term option can help you avoid overpaying on interest.

Our team at Summit Mortgage Corporation can help guide you in the right direction during the refinancing process. To begin, call us today.