Refinancing is the process of obtaining new home financing to replace current home financing. A homeowner can borrow enough to pay off just the existing first mortgage, or request an amount sufficient to pay off a 2nd mortgage or get cash out.
Rate/Term – is when only enough is borrowed to payoff the first mortgage – and the 2nd mortgage ONLY IF it was obtained for home purchase – plus pay any closing costs, prepaids such as taxes and insurance, and an additional 2% of the loan amount or $2000, whichever is less. The interest rate and costs are likely to be more attractive than when obtaining "Cash Out" (see below).
Cash Out – is when the loan amount results in the borrower getting more than the lesser of 2% of the loan amount or $2000, including funds borrowed to pay off a 2nd mortgage that was obtained after the home was purchased. As this type of loan is a slightly higher risk for the lender, the interest rate and costs will be accordingly higher.
The amount that can be borrowed depends on many factors such as the borrower's credit and income but, most of all, the appraised of the homel. In general, Conventional loans allow a maximum of 95% of the appraised value and those that are over 80% require Private Mortgage Insurance.
In April 2009, Congress passed the Making Home Affordable Program (HARP) which allows for loans up to 125% of the appraised value without requiring Private Mortgage Insurance when the existing loan is owned by Fannie Mae or Freddie Mac. Haven Lending has been proud to offer this program to many of our clients, successfully lowering their interest rates and loan payments.
In October 2011, the President authorized Fannie Mae and Freddie Mac to expand HARP to allow all loan amounts, regardless of the appraised value. This program will help many more responsible homeowners take advantage of today's low interest rates. Haven Lending is gearing up to begin originating new loans under the HARP expanded program as soon as it becomes available – anticipated to begin near the end of 2011. Call us today for eligibility information and to be pre-qualified for this great new program!