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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.
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