Your questions about mortgage refinancing answered

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A bumper crop of record-low interest rates has led to a boom in mortgage refinancing. Perhaps you’ve taken advantage, or perhaps you’ve thought about it and feel confused or overwhelmed by the process. Here are some basic questions about mortgage refinancing from social media and other sources, plus a few answers to specific questions from our readers as well.

Why should I refinance my mortgage?

The two main reasons people refinance are to save money by changing the interest rate and/or term of their mortgage, or to take advantage of their home equity through a cash-out loan. Rates have never been lower, so anyone with a mortgage taken out before 2020 may be able to get a lower interest rate.

A rate change usually means paying less interest, which saves you money over the life of the loan and may lower your monthly payments. A term change means changing the repayment period of your loan. Shortening the repayment term can mean higher monthly payments (but if it’s coupled with a lower interest rate, the payments may stay the same or even go down). Lengthening the repayment term usually means lower monthly payments, but paying more interest overall.

A cash-out refinance is a way for homeowners to take advantage of equity they’ve built up in their house. If real estate prices have gone up in your neighborhood since you first purchased your home, you have more equity. You can use that to get a mortgage with a higher principal balance, and then use the proceeds as a low-interest loan to fund home repairs or other big-ticket purchases.

What’s involved in a refinance?

Refinancing can be a lengthy and, at times, frustrating process, but it’s usually worth it if you can realize savings within 18 to 24 months of closing on your new loan.

If you’re thinking of refinancing, you should shop around for quotes on a new mortgage with at least three different lenders, and make sure you understand all the terms and fees. A new mortgage will have closing costs, plus other fees like an appraisal and application fee. Bankrate has a calculator that can help you decide if refinancing is worthwhile.

Check out Bankrate’s guide for more details about the process.

@parisrobbins_: How can you refinance a multi-family home?

It depends.

A multi-family home with up to four units can still qualify for a conventional mortgage. The monetary limits for a conforming multi-family loan are higher than those for a single-family home.

If the building you’re looking to refinance has more than four units, you may need to speak to a commercial lender instead.

Keep in mind that amid COVID-related financial uncertainty, lenders have been more stringent about underwriting new loans. Some banks may not offer refis for multifamily or investment properties, so it’s best to check with your current lender and be prepared to shop around if you’re set on refinancing. A mortgage broker may be able to help, too.

Also take a look at Bankrate’s guide for refinancing multifamily properties.

@Donnyv2345: How do you use your house to refinance student loans?

This is something you can do, but most experts advise against it.

If you refinance your student loans and mortgage together into one new loan, you’ll lose many of the special protections that federal student loans come with, like income-based repayment plans and the possibility of loan forgiveness if you’re working in certain professions.

While it’s true that mortgage interest rates are low right now, student loan rates are also usually pretty low, and for most borrowers, it’s not worth giving up the benefits that student loans may provide. Plus, if you struggle to pay in the future, you may wind up losing your house.

Federally-backed student loans are in forbearance until the end of the year, which means they’re not accruing interest and you don’t have to make payments on them until 2021. If you’re worried about making payments when the forbearance period ends, get in touch with your loan servicer and discuss your options.

President-elect Biden has also proposed forgiveness for many student loans, and you’d lose access to that program, too, if you refinance your student debt into your mortgage.

@family.fitness.money: Did I screw myself waiting until after 12/1 due to the extra fee?

No.

The Federal Housing Finance Agency refinancing fee you’re referring to did go into effect on Dec. 1 as planned, and that made most mortgage refinances 0.5 percent more expensive than they would have been a few months ago.

But, mortgage rates are still near all-time lows, and the fee only represents a small cost compared to the average size of a mortgage, plus the other fees associated with closing. The new charge may mean it takes you a little longer to break even and start saving once you do refinance, but it doesn’t make refinancing a bad option for most borrowers, especially if you can significantly lower your interest rate.

Keep in mind, too, that while most mortgage refinances will be affected by this fee, not all will. It’s only going to be applied to mortgages that are likely to be sold to Fannie Mae or Freddie Mac, and that means that jumbo borrowers won’t be charged the fee. Some government-backed loans are exempt, as are conforming mortgages worth less than $125,000. And, if you’re borrowing from a portfolio lender that will keep your mortgage on their books, you shouldn’t have to pay the fee, either.

Steve Aavang: Why is there a rule that you can’t get refinanced if you own over 12 properties? I mean would it be a better risk to lend to someone with 15 properties worth $100,000 each (1,500,000) or one with 2 properties worth $1,000,000) each ($2.000,000)… or why does an arbitrary number even matter?

I’m not a legislator, so I can’t speak to the exact reason why this threshold was decided on, but the general principle seems to be that, at some point, if you own enough properties, you’re a commercial property owner or real estate investor, and not just a homeowner with a few homes.

Once you have enough real estate in your portfolio, lenders and regulators will treat it as a business, not as personal assets. That means you’ll have to finance those properties through commercial lenders, which have different rules and loan terms than personal bankers do.

Like with the multifamily question earlier, some lenders may be hesitant about extending new loans to real estate investors in the current uncertain financial climate. If you’re encountering trouble refinancing, you may have to shop around more or wait until lenders loosen the purse strings again.

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