Should I Consider Refinancing My Mortgage?
Mortgage refinancing allows a homeowner to obtain a new loan and pay off the existing mortgage with the proceeds from the new loan.
There are several reasons why a homeowner may consider refinancing, including:
Get a lower interest rate. When interest rates are low, refinancing can reduce your monthly payment and help you build equity in your home faster. The general rule is to consider refinancing if your interest rate would drop by at least 1%.
Switch to a different loan type. While a fixed-rate mortgage allows homeowners to lock in their rate for a long period of time, an adjustable-rate mortgage (ARM) may offer a lower starting rate and more affordable monthly payments at least in the initial years of the loan. Depending on your financial situation, it may make sense to switch your current mortgage to a different type of loan.
Get cash out of your home’s equity. Leverage your home’s equity to pay other expenses, like a remodeling project, college tuition, or car purchase. A cash-out refinance allows homeowners to refinance for more than is owed on the original mortgage and get cash to spend elsewhere.
Consolidate debts. Homeowners with higher-interest debts—car loans, credit cards, second mortgages—may be able to consolidate them into a single refinanced mortgage loan.
To qualify for cash-out refinance, your name must be on the title of your home for a minimum of six months if you have a conventional loan or VA Loan, and between six months and a year if you have an FHA loan.
Mortgage refinance requirements that homeowners can expect include a steady income, good credit, and at least 20% equity in the home. You’ll also want to evaluate your debt-to-income ratio before inquiring about a refinance. Your debt-to-income ratio indicates whether or not you can afford your new monthly mortgage payment, which shouldn’t exceed 30% of your total gross monthly income.
It’s also important to note that the definition of good credit varies by type of refinance loan. Credit score requirements are typically as follows:
Conventional Loan Refinance
You must have a minimum credit score of 620 in order to refinance to a conventional loan.
FHA Loan Refinance
You must have a minimum credit score of 580 to qualify for an FHA cash-out refinance, although acceptable scores may vary by lender.
The VA Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA Streamlined Refinance, doesn’t require a minimum credit score, income documentation, or a new appraisal.
SPECIAL NOTICE REGARDING INTEREST RATES:
Due to the recent volatility in the financial markets because of the coronavirus and government actions, mortgage interest rates are varying significantly on a daily basis. AAFMAA Mortgage Services LLC remains focused on helping our Members and prospective Members get the best mortgage and rates available. Therefore, please contact us directly to obtain current rates, offers, and terms.
Connect with a Military Mortgage Advisor Today.
Are you interested in refinancing your mortgage? AMS offers refinancing options for current and former U.S. military servicemembers with qualified credit. Call 844-218-6926 to chat with an experienced Military Mortgage Advisor or contact us online today.