Refinancing Your Home – Ask the Expert

Editor’s Note: From time to time we like to invite local experts from the community to answer questions about parenting and raising kids in Huntsville and North Alabama. Today we asked Kim Cappaert, Mortgage Division Manager with Progress Mortgage Services, to address questions about refinancing your home.

How soon can you refinance a home, and how often? Are there penalties involved? If so, how can you avoid them?

There is no time that you have to wait after purchasing to refinance, unless you want to take cash out for purposes other than paying off the original mortgage or mortgages used to finance the purchase plus closing costs. There are possibly, but not likely prepayment penalties with the current loan being refinanced. These sorts of penalties have fallen out of favor with the CFPB and other governing entities, so they are not very common and not applicable to most standard fixed rate loans.

Is now a good time to refinance, especially to pay off debt or make improvements on your home?

Actually now is a terrific time to refinance. Rates are at multi-year lows thanks to a lot of market uncertainty, due in part to Brexit. Long term mortgage rates are closely associated with bonds which benefit from poor economic news or uncertainty and cause investors to favor the safe haven of bonds. If you are considering making improvements, this is often an excellent tax deductible way to finance the cost of improvements. If you are considering paying off debt, you will need to carefully consider if the lower payments make sense when financing over the longer mortgage term. A mortgage professional can help you make that analysis with a discussion of your individual goals. And even if refinancing simply to lower payments, you will need to look carefully to be sure that the benefit of lower payments is not offset by the closing costs incurred with refinancing. Everyone’s situation is a little different, as are there goals, future plans and income situations.

Is it better to get a 15 year fixed with a better interest rate, as long as you can afford the higher payments?

It makes much better sense to get a 15 year if you can afford the payments. You will save a huge amount of interest by paying it off quickly and avoid years of interest payments, plus interest rates are usually .50 to .75% lower. But even a 25 year or 20 year can be beneficial, and I always advise my clients to make additional payments to the principal when possible. Making one extra payment per year (either in a lump sum or spread out over the year) will reduce a 30 year term to a 21 year loan, saving thousands in interest. So one might consider a 30 year loan, if they are more comfortable with that payment, and then make additional payments when their budgets permit.

How can a family with not-great credit take steps to refinance?

If interested in refinancing with less than stellar credit, consult a mortgage professional. Often consumers feel that their credit scores are too low for financing, but with other strong favorable factors, such as low loan to value ratios, or debt ratios, or cash reserves, they might qualify. Also, some programs, such as FHA, VA and RD loans have programs for streamlined refinances that do not take credit scores into consideration and instead focus on current mortgage payment history.

If scores are actually too low to qualify for traditional financing, have the mortgage professional tell you what factors are affecting the scores and suggest ways to have credit repaired.

What is PMI?

PMI is private mortgage insurance which is required on any loan where the consumer is putting down less than 20% or has less than 20% equity in the property. The insurance protects the lender, not the consumer in the event of default. FHA loans have a similar insurance (MIP- mortgage insurance premium) and VA has a funding fee that basically does the same thing. PMI has a bad reputation, but is actually what allows borrowers to get loans with less than a 20% down payment, often very difficult particularly for first-time buyers. And PMI is tax deductible for most buyers at this time and is automatically dropped when the loan to value reaches 78% of original value.

The good news is most lenders offer Lender Paid Mortgage Insurance, which requires no additional monthly payment at a slightly increased rate.

Bottom line, consult a mortgage professional who will be happy to guide you through the process and prequalify you for a loan free of charge.

Do you have a question about refinancing your home? We’ll include it in our next round of Ask the Expert – just leave them in the comments below.ABOUT THE EXPERT: Kim Cappaert is the SVP Mortgage Division Manager and Loan Officer with Progress Bank. With over 31 years of experience in mortgage lending, Kim and her team provide a customer focused lending experience. Born and raised in Baton Rouge, Kim relocated to the area in 1987 and is married with 2 children, 2 grandchildren and a menagerie of animals. Kim enjoys playing the guitar, horseback riding and painting when not working to improve the loan process. Drawing from her years of experience, she can provide professional guidance for your families’ next home.