Yes, interest rates have ticked up, but there may be home refinancing opportunities that offer lower rates, reduced monthly payments and the elimination of being required to pay mortgage insurance every month. Home mortgage refinance rates are still very low, although they have edged higher in the past year. It still is a good time for many homeowners to refinance their home. People with a higher rate from years ago can benefit from home refinancing into a lower interest rate by locking in a 30-year rate, and even shorten their loan term so they can pay off their house earlier. Our homes are the biggest asset most of us have, so it is always important to save as much as you can on your home loan interest rate. With the information below, you will learn about the most affordable home refinance options in 2018.
How Home Refinancing Works in 2018
When you refinance, you are trading your current mortgage for a new one, usually at a lower rate, and sometimes with a shorter loan term. The lender pays off your old loan, and you start payments on the new one.
The most popular and common type of refinance loan is a conventional mortgage backed by Fannie Mae or Freddie Mac. These loans are issued by regular banks and private lenders and have stricter underwriting requirements. They can be harder to qualify for than a government-backed loan, but lending standards are getting easier. Conventional loans are good for refinancing for people with good credit scores and a lot of equity. If you have at least 20% equity, you may want to get a conventional loan because you will not have to pay for mortgage insurance.
Top Ranked Government Mortgage Programs for Home Refinancing
If you are mulling a refinancing your present mortgage loan, you may want to think about a home refinance backed by the federal government. There are three major government-backed refinance programs to know about:
• FHA Refinance: These loans are backed by the Federal Housing Administration. They offer 96.5% LTV refinancing with plenty of credit flexibility, and reasonable debt to income ratios. If you already have a FHA mortgage, he streamline program requires no equity. Easy to qualify for if you have past credit problems. Higher than average mortgage insurance costs, but a general good deal for the less than perfect borrower. For years this has been the most popular and go-to choice for home refinancing. The Federal Housing Administration backs loans that are issued by private lenders. These loans are guaranteed by the US government. So, there is less lender risk. The lender will usually offer more flexible lending terms with lower required credit scores and debt to income ratios. In many instances, this is an affordable program for home refinancing is the FHA streamline program. This is a loan you may want to do if you want to just get a lower interest rate. Say you got an FHA loan in 2008 when the rates were over 5%. Now you can get a loan in the low 4’s. With a streamline refinance, you can easily get into the new, lower rate loan without a new appraisal, credit check or income verification.
• VA Refinance: Designed for qualified veterans and active military. A great deal if you qualify – low rates, no minimum credit score, no mortgage insurance, and 100% LTV refinancing available. Approximately 90% of veterans opt for no equity refinancing, backed by the Department of Veterans Affairs. Many financial advisers consider this government backed VA loan to be the premier refinance option. These loans are designed to help military members, retired military and certain surviving spouses to buy homes or to refinance loans under very favorable terms. You can have a low credit score and high debt to income ratios and still qualify. You also can refinance into another VA loan with minimum hassle and paperwork; this is called a VA Streamline. This is a very affordable option and does not require a new appraisal, income or credit verification.
• USDA Refinance: These home loans are available to those who are not above 115% of the median income of the area. Only for areas that are designated rural according to USDA. Low rates and fairly easy to qualify for. Also offers home refinancing with no equity required. This option is backed by the Department of Agriculture. USDA may provide a good to refinance option if you are in a rural property. These loans help lower income borrowers to own homes in rural areas. These loans have more strings attached because you cannot make above a certain income. But the rates on USDA loans are very low and refinancing into a low rate USDA loan can be very affordable and save you big over the long term.
Loan Terms on a Home Refinance Mortgage
An option when you refinance is to move into a shorter-term loan. This will usually give you a higher payment, but you will save a lot of money over time. If you cut 15 years off your loan, you will save possibly hundreds of thousands in interest. Refinancing your home loan into a lower rate with a shorter term can be a very good way to save money. Plus, a 15-year mortgage usually has a significantly lower rate than a 30-year loan, sometimes as much as .5% difference.
Interest Rates on a Refinance Loan
Some people try to save money on a refinance by moving into an adjustable rate loan or ARM. These variable rate mortgages come with a lower rate initially than a 30-year fixed loan. One of the most popular is the five-year ARM. This is a fixed rate loan for five years, and then it readjusts after that every year. This type of loan will save you money in the short term with a rate that is .5% or so lower. This might be a good choice for you if you think you will be moving before the loan resets at a possibly higher rate. The rate after five years will change based upon a benchmark rate, such as the prime rate. A common reason people want to refinance is they had an ARM and now want to lock in a fixed rate when the fixed term on the ARM has expired.
Top Ranked Lenders for Home Refinancing According to the US News and World Report
• Jumbo loans: PNC Bank
• 15 Year loans: Guaranteed Rate
• Long term loans: CitiMortgage
• Easiest online applications: Bank of America
• Best FHA: Wells Fargo
• Best VA: USAA
The bottom line is there are several ways you can refinance your home and save money. If you are in a higher rate fixed loan, you can refinance into a lower rate in many cases in 2018. You also may save money if you are in an ARM that is going to reset at a higher rate, and you refinance into a low fixed rate.
Conventional and government backed loans also have many low interest rate options that can help you, depending upon your current rate, credit score and debt to income ratio.