Mortgage Refinancing: Your Options

Refinancing your mortgage can be a great way for homeowners to utilize the equity in their homes, get more value out of their homes, or get a better rate on their current mortgage. However, due to the current state of the United States housing market, it might not be a great time for refinancing their existing mortgages. However, could there be good news ahead for homeowners looking to refinance? If you are a homeowner looking to refinance your mortgage, you likely want to know the answer to this question. In this article, we’ll look at the current state of the mortgage market, whether or not mortgage rates will go down, if now is the time to refinance your home, the different types of refinance options you may have, and the benefits associated with them!

Will Mortgage Rates Go Down in 2023?

"Will mortgage rates go down in 2023?" is the big question on everyone's mind right now, regardless of whether they are current homeowners or prospective homebuyers. The quick response is that there is a chance that mortgage rates will decline by the end of 2023. However, some forecasts believe that rates may continue to rise through 2023 and into 2024. As of July 2023, the 30-year fixed mortgage rate was 6.96%. According to multiple forecasters, the interest rate may go down slightly by the end of 2023. For the last quarter of the year, Fannie Mae predicted a decline in mortgage rates to 6.3%. 

The housing market is anticipated to slow down very little as inflation starts to decline and the Fed rate remains level for the time being. Mortgage rates and the Fed rate are projected to keep rising through the end of 2023, according to the Economy Forecast Agency. Their forecasting model predicts that the Fed rate will increase from its current level of 5.25% to 5.5% in October of this year before falling back to that level in December. The model also predicts that 30-year fixed-rate mortgage interest rates will steadily rise, reaching a peak in November at 7.75% before falling to 7.71% in December. There are still certain factors that might indicate that a drop in mortgage rates is still a possibility, despite the fact that many experts and predictive models appear to point to one in the future.

Is 2023 a Good Time To Refinance a Mortgage?

2023 is not an ideal year to refinance your mortgage, given the present situation of mortgage rates in the United States and the number of homeowners that benefited from the record-low mortgage rates between 2020 and 2022. Refinancing a mortgage at this time is probably not in your best interest due to the rising mortgage rates, the ongoing uncertainty on whether or not they will fall, and the probable increase in the Fed rate. There are still some possibilities for those who want to refinance their mortgage. In 2023, refinancing might still be an option for homeowners who have mortgages with higher interest rates than the current rates. 

No Cash-Out Refinance

A no cash-out refinance means you're refinancing your current mortgage loan for an amount equal to or less than the current loan balance, along with any extra loan settlement expenses. You are not getting any new money advanced to you by doing this refinance, but it can give you the ability to get a lower interest rate or shorten the length of your loan. Let’s look at some benefits of a no cash-out to refinance your mortgage.

Changing Lenders

Sometimes, homeowners may take out a mortgage and experience difficulties in their relationship with their lending officer or lending company. By getting a no cash-out refinance, you have the opportunity to change lenders and start a brand-new relationship. 

Home Equity Stays Intact

With a no cash-out refinance, you are able to keep your home’s equity right where it is. There is no additional debt taken in the refinance, and you don’t lose any equity in the home. 

Lower Mortgage Payment

In some cases, homeowners may be able to lower their monthly mortgage payments with a no cash-out refinance. While the lower monthly payment is a great aspect, it’s important to remember that if you’re extending the length of the loan, you will also be adding additional interest costs over time than you would have had with your original loan.

Loan Terms Shortened

On the other hand, there is the possibility that you can refinance your mortgage into a shorter-term loan with a no cash-out refinance. Going from a 30-year to a 15-year mortgage can result in a higher monthly payment, but it can also save incredible amounts of money in interest over the life of the loan.

Cash-Out Refinance

Opposite from the no cash-out refinance, the cash-out refinance is a type of mortgage refinancing where a homeowner replaces their existing mortgage loan with a new one for an amount that is more than the current loan balance. Your home builds equity over time, and utilizing a cash-out refinance takes advantage of that equity. The difference between the two amounts is taken out as cash, which the homeowner can then use for a myriad of purposes.  Let’s explore the benefits and purposes of a cash-out refinance.

Lower Interest Rate

If your mortgage rate on your home is higher than the current mortgage rates on the market, a cash-out refinance would be an ideal way for you to use the additional money at a better interest rate than other types of loans like personal and credit line loans. 

Build Additional Equity Through Improvements and Additions

One of the biggest benefits of a cash-out refinance is that you can use that additional money to make big improvements or additions to your home. Remodeling your kitchen, adding another level to your home, updating your bathrooms, or finishing your basement can all be accomplished with the extra money that comes from the refinance. Not only does this improve your current living situation, but it also adds more equity to your home. While the cash-out refinance is essentially eating up the equity you earned before the refinance, building onto, or improving your home can gain it back just as easily. 

Debt Consolidation

Another great benefit from a cash-out refinance is the potential to use the equity in your home as a way to consolidate your debt. If you have previous high-interest debts, the extra money from the refinance can be a great way to eliminate it and just have the one monthly payment from the refinance at a much lower interest rate. This is a great way to save money in the long run and finally rid yourself of those pesky, high-interest debts.

Streamline Refinance

A streamline refinance is a specific type of refinancing option available only to homeowners who have a government-backed loan. This includes an FHA (Federal Housing Authority) loan, a VA (Department of Veteran Affairs) loan, and USDA (United States Department of Agriculture) loans. These options are designed to simplify the refinancing process for homeowners who often require less paperwork and can even have a limited or no appraisal. These options make the refinancing process quicker and can save both time and money for borrowers.

Rate and Term Refinance

Rate and term refinance involves replacing the existing mortgage with a new one to get a better loan term or a better interest rate on the mortgage. There is no additional cash that is taken out with a rate and term refinance and the primary goal is to save more money over the life of the loan by getting a lower interest rate or shortening the life of the loan. It can result in lower monthly payments, savings on interest, and can offer better protection against future interest rate fluctuations if you’re switching from an adjustable-rate mortgage to a fixed-rate mortgage. 

Cash-In Refinance

You guessed it. The cash-in refinance is the exact opposite of the cash-out refinance. In this option, the homeowner will bring additional money towards closing costs to help reduce the balance of the loan. It decreases the mortgage debt and can help the homeowner qualify for better loan terms and better interest rates. The target is to reach a loan-to-value ratio below 80% and potentially avoid having to pay private mortgage insurance. 

Hybrid Refinance

The hybrid refinance option combines certain elements of different refinancing options. If a homeowner wants a rate and term refinance with a cash-out component, the hybrid refinance is a great way to accomplish that. It allows homeowners to tailor their refinancing options to their own specific financial goals while taking advantage of multiple benefits in one refinance. 

Short Refinance

One of the less common refinance options, a short refinance, is usually pursued if the homeowner owes more on their mortgage than the current market value of their home. With this option, the lender can agree to reduce the outstanding loan balance to the property’s current market value. This option can help reduce the homeowner’s debt, getting them out of an underwater mortgage situation, as well as avoiding foreclosure.

Reverse Mortgage

A reverse mortgage is a special type of mortgage or refinancing option only available to homeowners who are 62 or older. It allows homeowners to borrow money using their home as security for the loan. In a reverse mortgage, the amount of money owed to the lender goes up over time instead of down due to the amount of interest and fees accrued to the balance each month. With a reverse mortgage, either homeowners or their heirs will have to eventually pay back the loan by selling the home. 

Costs Associated With Refinancing a Mortgage

There are a number of different costs that go with refinancing a mortgage for your home. As a homeowner, you should always consider all of the costs that are associated with the process and make sure that it makes financial sense for you to go through with the refinance option. Let’s take a look at some of the different costs that are associated with refinancing a mortgage.

Closing Costs

If you’re already a homeowner, you’re probably familiar with closing costs. Guess what? They’re back. Closing costs are fees and other charges that are associated with the loan transaction. There’s a wide variety of closing costs involved with refinancing, and they can include:

• Origination Fees: These are fees charged by the lender to process your refinance application.

• Escrow Fees: These are costs associated with setting up an escrow account to either hold funds for property taxes or homeowners’ insurance.

• Credit Report Fees: These are fees to get the homeowner’s credit report, used to help the lender determine creditworthiness and interest rates on the mortgage.

• Recording Fees: These are fees charged by local governments for recording the new mortgage documents.

• Appraisal Fees: These fees cover the cost of a professional appraisal to determine the property’s current market value.

Points

Discount points, or simply just “points,” are fees that are paid to the lender at closing to lower the interest rate on the mortgage. A point is usually about one percent of the total loan amount and can help lower the interest rate by a certain amount. Paying these points upfront makes more sense for homeowners if they plan on staying in the home for a more extended period of time and want to save more interest over the life of the loan.

Mortgage Insurance

If your current mortgage loan or new refinanced mortgage requires private mortgage insurance (PMI) or a mortgage insurance premium (MIP), you will need to pay those insurance premiums as a part of your refinance. Mortgage insurance is usually required when the loan-to-value ratio is above the 80% mark. 

How To Find a Mortgage Refinance Company

If you're looking to refinance your mortgage, you likely want to secure the best rate. It could be challenging to locate the best rate and deal for you with so many lenders readily accessible and numerous options. To help you find and secure the most competitive rate for your mortgage refinance, Expertise.com has compiled a directory of the most experienced and highly rated mortgage refinance companies. Don't solely concentrate on getting the advertised lowest rate from the first loan you find! You might have to pay more upfront for this. Get the best possible mortgage refinance offer today by browsing the extensive database of approved mortgage refinance firms on Expertise.com.