How much can you save by refinancing your mortgage?
When you are thinking about a refinance, important questions to answer include
How much money could you save? and
What might your new monthly payment be? That’s why we developed our Mortgage Refinance Calculator. Try it for yourself!
Keep in mind that the Mortgage Calculator merely provides an estimate on how much your mortgage payment will be based on the information you provide. The calculator does not take into account your overall financial situation so your actual rate and payment may be higher.
To get a more precise understanding of the comparative benefits of different loan types, speak with a loan advisor at Freedom Mortgage.
This calculator has four sections. The
Current Loan, section asks to input information about the mortgage you have right now. The
New Loan section asks for information about a new mortgage you might get and includes fields for loan fees and closing costs. It’s important to consider these costs and fees when you are deciding whether refinancing makes sense for you.
Home Info section asks you to input the current appraised value of your home and the number of years you expect to live in it after your refinance. Lenders use the value of your home to help them decide if you qualify for a mortgage as well as the terms they might offer you. How long you plan to live in your home after you refinance is also important to think about. That’s because the longer you live in the house, the more money you might save.
Taxes & Insurance section asks you to input the escrow payments for taxes and homeowner’s insurance that are part of your monthly mortgage bills. The calculator needs this information to help estimate how much your new payments might be.
People sometimes have more than one choice when they want to refinance their mortgages. Conventional loans are available to anyone who meets the requirements, and can be used to refinance a primary residence, a vacation home, or an investment property.
Veterans who qualify can use VA loans to refinance their homes. You may be able to refinance using an FHA or a USDA loan too. You can only refinance the house where you live with these types of loans. Look at the loan comparison table below to see which option may fit your needs. You can also get a personalized recommendation from one of our friendly Loan Advisors by calling 877-220-5533.
When you refinance, you pay off your existing loan and replace it with a new mortgage. People refinance to save money on interest, to reduce their monthly payments, to switch from an adjustable rate to a fixed rate mortgage, and other reasons.
When you refinance, you need to complete a new application and pay a new set of closing costs. Keep these costs in mind when you are thinking about refinancing your mortgage. You’ll want the potential savings to make paying the new closing costs worthwhile. FHA and VA borrowers may be eligible for a streamline refinance product. People who want to replace an existing FHA loan with a new FHA loan may be eligible for an FHA Streamline Refinance. With a streamline refinance, there can be less paperwork and fewer documentation requirements compared to refinancing other loans.
People who have FHA loans with Freedom Mortgage may qualify for additional benefits when they choose us for their FHA Streamline Refinance. For instance, Freedom Mortgage customers may be able to complete the application online and close in a location of their choosing, like their homes. Contact a Loan Advisor for more information.
Many people look at refinancing their mortgage when interest rates are falling. That’s because they want to save money on their interest payments. If they can get a new mortgage with a new interest rate that is better than the rate on their current mortgage, they might save money over time. There are other benefits to refinancing including …
- Lowering monthly payments
People can refinance because they want to reduce the size of the payments they make each month. They use the savings to invest in college and retirement accounts, to pay bills, to pay down other debts, and more.
- Getting cash from home equity
Refinancing can help people get cash from their home’s equity. This is called a cash out refinance. You pay off your current mortgage and replace it with a new mortgage for a higher amount, and you get the difference between the two loan amounts as cash at closing. People use this money to do things like pay down higher interest debts or invest in home improvements.
- Shortening the life of the loan
When you pay off a mortgage sooner than the terms require, you might save money on interest. That’s because you are paying back the interest over a shorter period of time. Some people refinance to shorten the life of their loans. Keep in mind that it is often not necessary to refinance to pay off a mortgage faster. You can simply make extra payments.
- Making payments more predictable
People with adjustable rate mortgages sometimes refinance to a fixed rate mortgage to make their monthly mortgage payments more predictable. With an adjustable rate mortgage, interest payments can change every year. With a fixed rate mortgage, interest payments stay the same.
- Getting rid of mortgage insurance
Sometimes people refinance to stop paying mortgage insurance. Borrowers might refinance an FHA loan to a conventional loan so they can stop paying mortgage insurance premiums, for example. You don’t always need to refinance to get rid of mortgage insurance. If you have a conventional loan, you should be able to stop paying for private mortgage insurance once your home equity reaches 20%.
Refinancing a mortgage can come with a new application, new paperwork and documentation, and new fees and costs. The process of refinancing can cost you time and the expense of refinancing can cost you money. Some borrowers pay these refinance expenses out of pocket. Some loans allow borrowers to add these expenses to their new mortgage balance. Let’s take a look at what refinancing can involve:
A new application and documentation
Because refinancing involves getting a brand-new mortgage, borrowers typically need to complete a new mortgage application. Lenders are likely to request a copy of your credit report from the credit reporting agencies. Lenders may also ask you to document your income and finances for many types of refinances. They may want to see pay stubs, tax returns, bank statements, a payment history on your current loan, and other documents.
A new home appraisal
Depending on the lender and the loan, you may be required to get a new home appraisal. This appraisal will estimate the current fair market value of your house and can cost between $300 and $500
New closing costs
Many times when you refinance you will need to pay a new set of closing costs. These can include things like loan application and origination fees, home appraisal fees, the cost of points to buy down the interest rate on the loan, and more. At Freedom Mortgage, we’ll make sure you understand all of the costs of refinancing to insure you feel confident in your decision to refinance.
New mortgage insurance costs
Mortgage refinances can come with new mortgage insurance premiums and fees. When you are refinancing with a conventional mortgage, you will have to pay for private mortgage insurance if your loan to value ratio is greater than 80%. When you refinance with an FHA loan, you may have to pay a new upfront mortgage insurance fee plus monthly mortgage insurance premiums. Refinancing with a VA loan can come with a new “funding fee” which is used to help protect the program if a borrower defaults on a loan. At Freedom Mortgage, we’ll help you understand if there are any mortgage insurance costs that apply to you.
Some mortgages come with pre-payment penalties – that is a fee you have to pay if you pay off the mortgage sooner than the terms require. Refinancing involves paying off your current mortgage and replacing it with a new loan. So look at the terms of your current mortgage, see if there is a pre-payment penalty and if there is how much it will be, and include this penalty in your calculations of whether refinancing is a good idea for you. There are no prepayment penalties on most loans Freedom Mortgage originates.
Higher monthly payments
Some types of mortgage refinances can increase your required monthly payments. When you get a cash out refinance, your monthly payments might increase because you are increasing the size of your loan balance. When you shorten the life of your loan, your monthly payments might also go up. Lenders are required to provide you with a Loan Estimate and Closing Disclosure which discloses how much your new monthly payments will be. Review these numbers and decide if you can afford the new monthly payment.
|Appraisal Needed Yes||Appraisal Needed No for Streamline||Appraisal Needed No for Streamline||Appraisal Needed No|
|Income Verification Yes||Income Verification Varies by loan||Income Verification Varies by loan||Income Verification Varies by loan|
|Credit Requirements Yes||Credit Requirements Varies by loan||Credit Requirements Varies by loan||Credit Requirements Varies by loan|
|Mortgage Insurance Yes, if less than
|Mortgage Insurance No||Mortgage Insurance Yes||Mortgage Insurance Yes|
|Loan-to-Value Ratio (LTV) limit Yes||Loan-to-Value Ratio (LTV) limit Varies by loan||Loan-to-Value Ratio (LTV) limit Varies by loan||Loan-to-Value Ratio (LTV) limit Varies by loan|
|Loan Restrictions Any Loan Type||Loan Restrictions Must Have a VA loan||Loan Restrictions Must Have an FHA loan||Loan Restrictions Must Have a USDA loan|
If you have a VA or FHA loan, you may be able to refinance these loans using the
streamline process. A streamline refinance can have fewer paperwork and documentation requirements, which saves time for borrowers who qualify.
You need to have an existing VA loan or FHA loan to be eligible for the streamline process. When you have a VA loan, you can only use the streamline process to replace it with a new VA loan. The same is true for FHA loans. You can only use the streamline process to replace an existing FHA loan with a new FHA loan.
Freedom Mortgage customers with existing VA or FHA loans may qualify for additional benefits when they choose Freedom Mortgage for their streamline refinances.
How to refinance your mortgage
It’s important to decide if refinancing your mortgage makes financial sense. Many people do this by calculating a
break even point. Your break even point is the moment when the costs of a refinance have been paid for by the money it saves.
For example, if you are thinking about a refinance which will save you $100 a month and has $1,500 in closing costs, it will take you 15 months to
break even and begin to save money. And the longer you live in the house, the more money you will save. This is the reason real estate professionals often recommend you do not refinance when you are planning to sell your house in the near future. That’s because the savings from a refinance might be minimal if you only live in the house a short time before you sell.
There are other important steps to take when you want to refinance your mortgage. These steps include:
Checking your credit score and finances
Lenders use your credit score to help them decide whether you qualify for a loan and the interest rate they might be willing to offer you. So it’s a good idea to review your credit score and credit report to make sure they are accurate. Your income, how much you owe on loans besides your mortgage, and your payment history can also affect your eligibility for a refinance.
Estimating your home’s value
Your home’s current market value can influence whether you qualify for a refinance. That’s because lenders use your house’s value to calculate a loan-to-value ratio. Loan-to-value ratio is a percentage you get by dividing the size of a mortgage by the value of the house it’s financing.
For example if a home is worth $200,000 and a borrower would like to refinance that home with a $150,000 mortgage, then the loan-to-value ratio is 75%. (Calculation: $150,000 ÷ $200,000 = 0.75 or 75%.)
Most lenders have maximum loan-to-value ratios on the loans they offer. Borrowers have to stay below these maximums to qualify for a loan. Lenders prefer refinances with lower loan-to-value ratios because they might see these loans as less risky.
Researching interest rates and loan terms
Talk to different lenders when you are thinking about refinancing and get a couple quotes. The interest rates and other terms you might be offered can vary from lender to lender depending on a broad range of factors, and the closing costs and other requirements can vary too.
Freedom Mortgage customers can also enjoy the benefits of our Eagle Eye program, which monitors current market conditions and looks for ways our customers might save money by lowering their interest rate, get cash from their home’s equity, and more.
What our customers say about refinancing their home loans
Check out the reviews from some of our customers.
Tips & Insights
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