What is a Mortgage Refinance and Should You Get One?

If you are a homeowner, you probably hear the term “refinance” a lot.

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What exactly is it and is it something you should plan for in the future? Does a refinance hurt credit? Are there consequences or benefits? How long does a refinance take? Numerous questions revolve around this word.

It might be evident that “refinance” means to finance again. You may have an idea of what it means to refinance your home but want more specifics to officially decide whether it would be the best option for you. Below are some questions for you to consider.

What is a Mortgage Refinance?

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Simply put, a mortgage refinance is a loan that is issued to a homeowner to replace an existing one. The owner can customize the detail and terms such as the mortgage rate, length of the loan, and how much you borrow.

When you first get a mortgage, the terms might not work for you forever. So, you may choose to refinance to reduce a mortgage payment, get funding for home improvements, cancel mortgage insurance premiums, or pay off your home quicker.

Refinance loan transactions are common, tend to close more quickly than original mortgage loans, and usually involve less paperwork. You are under no obligation to refinance with your current lender. Twin City Lending encourages you to contact them today to discuss your qualifications for a mortgage refinance.

How Does Refinancing Affect Your Credit Score?

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You are probably wondering“does refinance hurt credit score?”While it shouldn’t have a significant adverse impact on your scores, when the bank looks at it, it will trigger a hard inquiry which can cause your FICO credit score to drop a few points.

How Often Can You Refinance Your Home?

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You can refinance your home however many times as you’d like. However, some banks charge a penalty for closing out a mortgage too soon. Some banks also require you to wait in between appraisals up to six months. Also, keep in mind that every time you refinance your home, you are going to get multiple hard inquiry reports on your FICO credit score. Every time a lender inquiries your credit, it will drop a few points. The more credit history you have, the more it will help you prove that you are responsible enough for them to grant you a loan.

How Soon Can You Refinance a Mortgage?

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There is no official time limit on how soon you can refinance your mortgage after purchasing a home. However, lenders have requirements and guidelines to satisfy. You must check to determine if there is a prepayment penalty included in your mortgage agreement. These penalties aren’t common since recent regulations now discourage banks from doing this, but it is still possible that you have one. Contact Twin City Lending today to discuss our guidelines for refinancing your home.

How Long Does A Refinance Take To Process?

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Refinancing your home usually takes less time than the original mortgage loan. An estimated 30-45 days is typical, but plenty of factors could lengthen that period. While some lenders can be unresponsive, some homeowners can be the same way. How quickly you gather the necessary paperwork and keep in touch with the lender can determine how long does it take to refinance a house.

Different Types of Mortgage Refinance Loans

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There are three different types of refinancing mortgages: rate-and-term, cash-out, and cash-in. Your circumstances will determine which one is right for you.

Rate-And-Term: With rate-and-term refinance the only thing that will differ from your original mortgage loan will be the mortgage rate, term limit, or both. They gear toward reducing the loan term and monthly payments so that you can pay off your home quicker.  Most refinances are rate-and-term.

Cash-Out: Cash-out refinance offers a lower loan term and mortgage rates. However, it does increase the amount you owe. You can expect the new loan balance to exceed the old one by five percent or more. Only owes the original amount is owed to the bank, so the money left over distributes to you at closing. Or, if you are using the money for debt consolidation, the creditors will receive the funds. Cash-out loans provide more of a risk to banks than rate-and-term loans. So, they have stricter approval requirements also. It might have a lower maximum amount lent, or it could require a higher credit score. Most lenders will limit the cash-out mortgage amount to $250,000.


Cash-In
: A cash-in refinance is the exact opposite of a cash-out. The homeowner will bring money to the closing to pay on the loan balance and amount owed to the bank. That could result in lower monthly mortgage rates and a shorter loan term. Another reason to opt for this type of financing is to do away with mortgage insurance premiums. Once the loan amount reaches 80% LTV or lower, it’s no longer due.

Mortgage refinance loans are not a bad thing, and it can save you money. The mortgage terms you have now might not always work for you. If you want to shorten the length of your loan, get a lower interest rate, reduce your monthly mortgage amount, or do away with your mortgage insurance premiums, refinancing may be the answer for you.

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