Refinancing 101

You may be looking to save money, lower your monthly payment or take advantage of the equity in your home to get cash out. Below is some information to help you decide whether a refinance is the right option for you.

Examples of Good and Bad Times to Refinance

Good Examples.

• Reduce your monthly payments.
  There are a number of ways to do this, like getting a loan with a lower Annual Percentage Rate. The other common way to decrease your monthly payment is by extending the term of your loan from 15 or 20 years to 30 years. Lengthening your term may reduce your monthly payment; however, you will be paying more interest in the long run.


• Take advantage of a lower rate.
  A general guideline is the 2% rule. If an interest rate is available that is 2% lower than your current rate, it may be a good idea to refinance. However, when you refinance, you will have new costs associated with that loan. You will need to compare those new costs with what you will save to determine whether it’s an advantageous decision.


• Convert an ARM to a Fixed Rate mortgage.
  Adjustable Rate Mortgages can be a good option if you need a lower payment at the beginning of your loan. However, monthly payments can change dependent on current market conditions. By refinancing to a Fixed Rate loan, you’ll achieve the stability of a consistent, known payment for the entire term of your mortgage.


• Reduce your term from a 30 year loan to a 20 or 15 year loan to save money on interest.
  Although your monthly payments will increase, you will save money in interest with a shorter-term loan versus a longer-term loan.


• Save money by consolidating a 1st and 2nd mortgage into a single loan.
  In some cases, the monthly mortgage on the consolidated loan may be lower than your combined payments.


• Use the equity in your home to access cash.
  You may opt to pay off high-interest credit cards, make home improvements or pay for your child's education using your home's equity. Equity is the dollar value difference between what you owe and the home value of your property. When you refinance for an amount that is more than what you owe on your home, you can get the difference paid to you in cash, known as a cash-out refinance. It's important to note that when you take out equity, you own less of your home and it will take time to build your equity back up.

Bad Examples.

• If you are almost finished paying off your first mortgage.
  A refinance gets less and less advantageous the more mature your loan is and the more you’ve paid off.  If you have a 15 year loan, and you only have 2 more years left before you pay off your mortgage, do not refinance. A refinance will result in the loss of equity and will also add more debt to your plate – something you don’t want to do when you’re so close to paying off your home loan.   


• If you have a 2nd mortgage or a Home Equity Loan.
  When you take out a 2nd mortgage or have a Home Equity Loan, you have already diminished your home’s equity. An advantageous refinance at that point is unlikely.


• If you are planning on moving soon.
  There's something called a break-even period. When you refinance, you end up paying closing costs, just like you did with your first mortgage. Your refinance should eventually off-set the additional costs you paid to close on your new loan. For example, if your closing costs were $1000 and you save $100 a month with your new interest rate, it will take you $1000 / $100 = 10 months to break even. If you don’t plan on being in your home for 10+ months, then you should not refinance.


• If your property value has decreased significantly.
  For example, if you wanted to refinance 80% of the appraised value of your home, if your property goes down in value, your current mortgage may be higher than the amount you borrow. Your refinanced loan will not be enough to pay down your current mortgage.

6 Big Factors to Consider When Refinancing

Even though the loan process is similar to a first mortgage, refinancing is different than buying a home. Usually, people need a mortgage if they want to purchase a house. Refinancing really only makes sense if it's of benefit to the homeowner - a way to save money. That's why research is really important when refinancing.

Top Factors to Consider:

• How long you plan on living in your home. Know your break-even period.
  
  There's something called a break-even period you need to take into account. When you refinance, there are costs very similar to when you signed for your first mortgage. When your refinance savings exceed the costs of your refinance closing - that's the break-even period. If it takes 5 years to reach that point and you're not planning on being in your home for 5 more years, it does not make sense to refinance. You will move before you realize the savings of your new mortgage.


• What your refinance Annual Percentage Rate will be.
  See our Daily Rates.


• What your current APR is.


• How much will it cost to close on your new loan?
  
  We offer a tool called Loan Consultant where you answer 12 simple questions and it will calculate out your potential closing costs! For an estimated figure, your refinancing fees may total between 3% to 6% of your principal balance - what you still owe on your first mortgage.


• Check your credit score.
  
  These are just general guidelines, but a score of 740 or higher will usually qualify you for the best rates and lowest fees. You may still be able to qualify for a refinance with a score of 680 and above, but the interest rates and fees may not be as favorable.


• Know where you stand with equity.
  
  If you owe too much more than what your property is worth, you probably won't be able to qualify for a refinance. That's where equity comes into play, which is the difference between what you owe and your home's current market value.
  
  A traditional rule of thumb is that homeowners need an 80% loan to value ratio (LTV) to qualify for a refinance. However, there may be new solutions available where you can have an LTV ratio that is much higher.

How to calculate your loan-to-value ratio:

1. Find out your home's market value.
   
   Let's use $200,000 (Even if you bought the house 4 years ago for $250,000, use the current value.)


2. Find out the balance of your existing mortgage.
   
   Your original mortgage was for $250,000, and you have paid $90,000 already, so your principal balance is $160,000 - what you still owe from your first loan.


3. Then divide the balance of your original loan by your home value to get your loan to value ratio (LTV).
   
   Your LTV ratio would be 80% ($160,000 / $200,000) indicating you have just enough equity in your home that you may qualify for a refinance.

GTE Financial makes it easy to find the right refinance loan for you.

Helpful Tips

Information to collect prior to refinancing:

• Your monthly income, which you can find in your last few pay stubs.
• How much you owe, otherwise known as liabilities, like a car loan, credit card balances and a current mortgage for example.
• How much you still owe on your house.
• How much you have to put towards a down payment.
• How long you're planning to stay in your new home.
• How much flexibility you have with your monthly payments.
• Documents to have on-hand include pay stubs, current bank and brokerage statements, income tax returns such as your W-2 and any credit score reports.  

Tips before applying for a refinance:

• Pay off debt. Try to pay off as many liabilities as you can, such as credit card balances. Carrying a large amount of debt may put your ability to qualify for a low interest loan in jeopardy.
• Current payment history. Lenders will look at your current payment history. It’s usually best if you can show no late payments within the last 12 months. If you have solid reasons for why your payments were late, make sure to document those so you have a written rationale available if needed.
• Credit check. Check out your credit report to make sure it’s accurate. If you have a negative report, dispute any items that may be erroneous.

Calculators

Crunch some numbers with our helpful calculators!

Refinance Calculators
Amortization Calculators

Once you’ve started getting organized, the next step is to find the right loan and apply for your refinance!

Helpful Tips

• Research Loan Options. You can learn more about all GTE Financial’s loan options right here on our website, including details on when a certain loan may be your best choice.


• Calculate and Compare Loans. With 12 simple questions, you’ll be able to view available rates, estimates on total closing costs and monthly payments using GTE’s Loan Consultant tool. It’s a great resource for crunching some initial numbers and comparing options.


• Apply for a Refinance Loan. Once you feel good about what is most important to you in a mortgage, apply for a refinance.


• Select a loan option in the application.
  • Within GTE Financial’s online application, you will be asked to select a loan option. With all your research accomplished, picking a mortgage will be simple!
  • If you receive an approval, that means you have been credit pre-approved for the loan type, amount and term you’ve selected.
  • If you do not receive an instant pre-approval, you will still be contacted by a GTE Mortgage Specialist.
  • If things change, or your pre-approval expires, you may need to re-apply for a new loan. By being as accurate as possible on your initial pre-approval, you can save significant time.


• Apply for the Right Loan


• Refinance Application FAQs

Calculators

Crunch some numbers with our helpful calculators!

Compare Loans Calculator
Refinance Application FAQs

Closing is the final step in the refinancing process!

• Closing date. The closing date is decided upon by the lender and homeowner. Closings usually take about 1 to 2 hours. All the necessary loan papers will be signed by the owner at this time.


• Escrow. The lender will prepare the loan documents for you to sign and send them to an Escrow Company for signing as well. Once GTE Financial receives the signed documents, we will transfer the money to the Escrow Company and they will disburse the loan and record the closing documents.


• Money you need to bring. In preparation for the closing, the owner must obtain a cashier’s check or a wire transfer ready for the amount of money due upon closing. Once payment has been made and paperwork completed, the refinance will be final.


• How will I know how much I have to pay at closing? Depending on the stage of your loan, there are 3 primary ways you will receive information on how much you owe at closing.
  
  
  • Good Faith Estimate (GFE), an itemized list of fees and costs associated with a loan usually provided within 3 business days of applying for a loan, but is highly subject to change.
  • Summary of Charges, another estimate that is also subject to change. When you apply online with GTE Financial, there is a page within the online system that will provide a Summary of Charges as well as Closing Cost Details. The Summary of Charges is usually a bulk number, for example $7,500, and then the Closing Cost Details specifically outline all of the line item costs that get you to your bulk sum. You can receive a Summary of Charges with our online mortgage application or using our Loan Consultant tool. Based on 12 simple questions, the Loan Consultant will calculate available interest rates, total closing costs and monthly payments.
  • HUD Closing Statement, the official and final detailing of what you owe at closing provided by the U.S. Department of Housing and Urban Development. This will be provided to you usually 5 days or more in advance of your closing date.