Frontier Mortgage makes it easy to refinance your current mortgage. Through refinancing, you can save on your monthly payments, consolidate your debt, and even get cash for your children's education or home improvements. At Frontier Mortgage, refinancing will not cost you any money out of pocket, and you can get approved within 24 hours! Let's take a walk through the process.
Why Should I Refinance My Home?
You should only consider refinancing if there are significant savings to you. If you already have a low 30 year, fixed rate mortgage, you're probably alright. But if any of the following applies to you, you might consider refinancing your home. If you want to:
1. Lower your monthly payments.
If current interest rates are lower, you can get a reduced fixed rate mortgage and decrease your monthly payments.
2. Get cash out of your equity.
Getting cash out of your equity is a good way to release money for expenditures such as college education and home improvements. Simply decide how much you want and increase your loan by that amount. The general rule of thumb is that you may refinance up to 80% of the value of your home when getting cash out. For example: Suppose you own a house that has an appraised value of $100,000 and your current mortgage(s) is(are) for only $60,000. If you have good credit, you should be able to refinance you mortgage for $80,000 and get cash back of $20,000 to use for whatever you want. If you want to complete this transaction with no money out of pocket, Frontier Mortgage will roll your closing costs into your loan. Obviously, if you choose to do this (as most people do) your cash back to you will be less than $20,000.
3. Change from an Adjustable Rate Mortgage to a Fixed Rate Mortgage.
In the event that interest rates are increasing and you want the security of a fixed interest rate, you can refinance your home to get a fixed interest rate.
4. Consolidate your debt.
Refinancing you home can help you pay off your other debts. You can increase your loan amount by the amount that you need and you will receive the cash you need to pay off other creditors. You have shifted the debt to the lender but at a lower interest rate and the interest you pay is tax deductible.
5. Pay off your mortgage sooner.
You can switch to a shorter term mortgage or a bi-weekly payment plan to pay off your loan sooner. This can result in big savings to you if the new rates are significantly lower.
What are the costs of refinancing?
It will cost money to refinance your mortgage. The usual fees apply as if you are purchasing a new home. If you only plan to stay in the home for a short period of time, refinancing may not be the best option.
Paying Points
Points are basically finance charges you pay the lender. One point equals 1% of the loan amount. The more points you pay, the lower your interest rate will be. This is important if you are planning on staying a while, otherwise you should try to avoid paying points altogether. Most of Frontier Mortgage' refinances do not require that any points are paid up front.
Other fees that may apply:
- Application Fee:
Loan processing and credit check.
- Appraisal Fee:
Estimate of property value.
- Title Search and Title Insurance:
A Title Search examines the public record to discover if any other party claims ownership of the property. Title Insurance covers you if any discrepancies arise in ownership. (A reissue of the title can save 70% over the cost of a new policy.)
- Lender's Attorney's Review Fees:
The legal fees that a lender receives through an attorney's review are passed to you.
- Miscellaneous:
Other fees may include costs for a VA loan guarantee, FHA mortgage insurance, private mortgage insurance, credit checks, inspections and other fees and taxes.
What Types of Mortgages Are Available?
Mortgages come in all shapes and sizes. We offer:
Fixed Rate Mortgages
This is the most common of all loan types in the U.S. A fixed rate mortgage allows you to lock in a rate for as long as 30 years, providing the lowest monthly payments. A fixed rate can also work against you if the average 30 year rates fall far below the rate at which you are fixed. Your rate can only be changed if you refinance your mortgage. Fixed rate mortgages are also available in 20, fifteen, and even ten year terms. Of course your payments will be higher, but you will be able to pay off your mortgage sooner and save thousands of dollars in interest charges.
Adjustable-Rate Mortgages (ARMs)
ARM interest rates are fixed for a period of time (anywhere from three months to seven years depending on the mortgage) then adjust periodically based on market rates. Your monthly payments can increase or decrease depending on the market. With an ARM you share the market risk with the lender. In return for your share of the risk, lenders compensate you by giving you a lower starting interest rate.
How often and how much does my rate change?
Rates can change monthly, every six months, once a year, to every three years. The frequency of your rate change depends on the terms you arrange with your lender at the beginning the mortgage. At the beginning of each adjustment period the rate moves up or down with the maximum adjustment being at the preset "cap". If the market stays steady, your interest rate may not change at all. You may, in fact, see a drop in your monthly payments if the market index falls.
Determining your rates
Your ARM loan is linked to a market index like the LIBOR or COFI. Your rate is determined by adding a small percentage to the market index. This additional percentage is called a margin. As the market rate changes, your rate changes. There is a limit, however, known as a lifetime cap or ceiling. The ceiling guarantees your interest rate will never increase beyond this point, no matter what the market index is. If you started with a 6% interest rate with a cap of 6, then your maximum rate, throughout the lifetime of the loan, would be 12%.
Why would I choose an ARM?
As stated above, you can start with a much lower interest rate than conventional mortgages, as much as 2% to 3%. These loans are easier to qualify for and are better suited for short term purchases. ARMs are good for individuals who know they may not being staying in their house for 30 years or want an interest rate that is lower than current 30 year rates so they can save money on mortgage payments for one, three, five, or seven year terms.
EXAMPLE . ARM
Many different ARM products have become popular in recent years. You may have heard of three-one, five-one, or seven-one ARM's and wondered what exactly does this mean. Lets look at an example:
What is a 5/1 ARM with 2/6 caps?
In mortgage industry lingo, this is stated as "a five-one ARM with two and six percent caps". This means that your introductory rate is fixed for five years and will adjust annually after the five-year period is complete. When it adjusts, it can adjust upward or downward by a maximum of two percentage points in rate with a lifetime "cap" in rate that is six percent above the rate you began with. For example: if your rate started at 7%, the maximum interest rate you will pay in year six will be 7% plus 2%, or 9%. On the same loan, your lifetime maximum rate will be 7% plus 6%, or 13%. Although a 13% does not sound very attractive, it would take you at least eight years from the time you originated this mortgage to get to this rate. If you were smart about your finances, you would probably have refinanced your mortgage before you got to this interest rate.
Negative Amortization
Loans of this type have caps on payment adjustments instead of caps on interest rates. Negative amortization occurs when the payment you make does not cover the cost of the interest and principal. In other words, your payments would stay the same even if the interest rates increase. This increase would then be added back into your mortgage, increasing your total debt. These loans are good if you are on a fixed income and you are not concerned about paying off the loan but rather controlling your cash flow.
Hybrid Mortgages
There are many different types of hybrid loans.
Convertible ARMs
A convertible ARM is an adjustable rate mortgage that allows you to convert to a fixed rate mortgage after some pre-determined period of time. If interest rates are fluctuating, this can help lower your risk. There is a large fee involved, however, and your new fixed rate could be much higher.
Two-Step Mortgages
A two-step mortgage is a convertible ARM that adjusts once, usually after a period of five or seven years. It is then fixed at the new rate for the remainder of the loan period, but the new rate cannot increase more than 6%. You can take advantage of the lower rate to start, but there is always the risk of a much higher rate later.
Why would I choose a Two-Step mortgage? A two-step mortgage gives you a lower start rate and a lower monthly payment. This can be very helpful if your total monthly payments are too high for you to qualify for a 30 year fixed rate mortgage payment. A lower start rate makes it easier for you to qualify for a larger mortgage amount.
Balloon Mortgages
This type of mortgage offers an interest rate that is lower than current 30 year fixed rates. Payments are amortized over a thirty years, similar to a 30 year fixed mortgage, but the note becomes due after the fixed rate period of either 2, 3, 5, 7, or 10 years (you may see these loan referred to as "2/28, 3/27, 5/25.... mortgages). After the 2, 3, 5, 7, or 10, year period is up the note becomes due and payable. In many cases a lender will offer the opportunity to convert to a fixed rate that is slightly higher than market 30 year fixed rates at no cost. This can prevent a borrower from being forced to refinance a mortgage and eliminate any closing costs that are associated with refinancing.
Why would I choose a balloon mortgage? Balloon mortgage can be use for primarily the same reasons as an ARM. They can help you get a lower initial payment and are good for individuals who know they may not being staying in their house for 30 years.
Graduated Payment Mortgage (GPM)
The GPM allows you to make smaller payments to start (usually interest-only), then gradually increase to a fixed payment after about five years. This can put you in a negative amortization situation in the beginning, but smaller payments can allow you to afford a larger home.
Other Mortgages
Stated Income Mortgages
When obtaining a stated income loan the lender does not verify your income. Rates on these loans are usually higher than market rates on loans where your income is verified. Stated income loans are not offered by all lenders and usually allow LTV's (Loan compared to appraised Value) of 60 . 80%. This type of loan is excellent for individuals who have income that is very difficult to verify, have their own business, or have a sales job with varying commission.
HOME EQUITY LOANS AND 2ND MORTGAGES
Home equity loans and 2nd mortgages are essentially the same. They give you the ability to use the equity in your home as cash for other purposes. For Example: Suppose you currently own a home with an appraised value of $100,000 and have a first mortgage of $70,000. Depending on your credit history, you may be eligible to get an additional mortgage (home equity loan or 2nd mortgage) for up to $30,000 ($100,000 Value - $70,000 First Mortgage = $30,000 available equity). Some lenders even offer home equity loans for up to 125% of the value of your home. Keep in mind that if you plan on selling your home in the near future and have mortgages that add up to 100% of the value of your home, your sale will generate very little cash for your use.
Interest paid on home equity loans and 2nd mortgage is almost always tax deductible.
Repayment terms on these loans may be anywhere between five and 20 years.
Home equity line of credit
This is a credit line established on the equity you have in your home. It offers flexible access to funds, and you only borrow money as you need it. Once a line of credit is established, it is almost always available to be tapped. Over time, you are allowed to pay back a large portion of the loan then draw on it again later when you need it.
Home equity loan
Instead of a line of credit, the home equity loan allows you to borrow one lump sum of money against the equity of your home. If you know that you will only be needing a fixed amount of cash, this may be a good loan for you.
Second mortgage
Taking a second mortgage on your home has possible tax advantages and helps you avoid PMI. Even with predictable payments, there are now two monthly payments or possibly two lenders involved.
80/10/10 Mortgages
An 80/10/10 mortgage can be used to avoid paying monthly mortgage insurance. When buying a home, you may not have enough cash on hand to make a 20% down payment but do have enough to make a 10% down payment. As you may already know, with a 20% down payment you will not have to pay mortgage insurance, but if your down payment is anything less than 20% then you will have to pay mortgage insurance. With an 80/10/10 mortgage you will be obtaining a first mortgage for 80% of the sales price, a second mortgage for 10% of the sales price, and a down payment of 10%. Obviously, the interest rate on your second mortgage will be considerably higher than on your first mortgage. Usually the combination of payments on the first and second mortgage will be lower than if you had gotten a first mortgage of 90% LTV and had to pay mortgage insurance.
Construction Loans
A construction loan is used to finance the building of your new home. Builders in multiple unit developments usually finance the construction costs themselves. If you have purchased a lot to build your house on or are having a home custom built, you will most likely need a construction loan. Construction loans are usually at a slightly higher interest rate than market 30-year fixed rates. After the lender approves a construction loan, a disbursement agent (usually the Title Company) writes checks to the contractors as costs are incurred. You will make monthly payments of interest only for the total amount that has been disbursed. After construction is complete, your permanent mortgage financing pays off the construction loan.
VA Loans
Administered by the Department of Veterans Affairs, these special loans make housing affordable for U.S. veterans. To qualify you must be a veteran, reservist, on active duty, or a surviving spouse of a veteran with 100% entitlement. A VA loan is simply a fixed-rate mortgage with a very competitive interest rate. Qualified buyers can also use a VA loan to purchase a home with no money down, no cash reserves, no application fee and reduced closing costs. Some states allow a VA loan for refinancing as well. Many lenders are approved to handle VA loans. Your VA regional office can tell you if you're qualified.
FHA Loans
FHA loans are designed to make housing more affordable for first-time home buyers and those with low to moderate income. Both fixed- and adjustable-rate FHA loans are available, and in most states, an FHA loan can be used for refinancing. The difference is, they're insured by the U.S. Department of Housing and Urban Development (HUD). With FHA Insurance, eligible buyers can put down as little as 3% of the FHA appraisal value or the purchase price, whichever is lower. Qualifying standards are not as strict but the rates are slightly higher than with conventional loans.
Frontier Mortgage, 12400 Olive Blvd, Ste 425, St. Louis, MO, 63141: Phone: 314-205-2900 Toll Free: 800-456-2900 |
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