Mortgage Refinancing

Mortgage Refinancing Topics Covered

Refinancing involves replacing your current mortgage with a new loan. You must qualify again, just as you did for your original mortgage. The process includes submitting an application, going through underwriting, and attending a closing, similar to when you first purchased your home.

The Mortgage Refinancing Process

Start by addressing any credit issues so your score is as strong as possible, helping you qualify for the lowest interest rates. Have a general idea of the rate and loan terms you want, and make sure they offer an improvement over your current mortgage.

Then compare options by gathering quotes from several Texas lenders. Avoid selecting your current lender without checking competitors first. Get at least three or four offers before asking your lender what it can provide.

Avoid opening new credit accounts while refinancing, as this can interfere with your approval. Before you sign, review all loan terms and fees carefully so you know exactly what to expect when payments begin.

Throughout the process, pay attention to closing costs. Also look for potential issues such as prepayment penalties, which can create complications if you choose to pay off the loan early or refinance again.

Reasons to Refinance a Mortgage

Lowering your monthly payment can be achieved by refinancing into a loan with a lower interest rate or a longer term. Keep in mind that extending the term generally results in paying more interest over time.

Paying off your loan faster is possible by choosing a shorter mortgage term, which reduces the total interest you pay. The tradeoff is that your monthly payment will likely increase.

Eliminating FHA mortgage insurance is another reason to refinance. Unlike private mortgage insurance on conventional loans, FHA mortgage insurance premiums cannot be canceled. You can remove them only by refinancing once you have enough equity in your Texas home, which is determined by estimating your home’s value and subtracting your remaining loan balance.

Cashing out may be an option if you have substantial equity. This allows you to access part of that equity to cover expenses, make large purchases, or complete a buyout in a divorce.

Switching from an adjustable rate to a fixed rate mortgage can provide more stability. Adjustable rate mortgages may increase over time, while fixed rate mortgages keep the same rate and payment. Refinancing can help if you prefer predictable monthly payments.

Consolidating debts is another potential benefit. If you have several loans, refinancing to combine them into one can simplify your payments and make them easier to manage.

Different Types of Mortgage Refinancing

Rate and Term refinancing focuses on changing the interest rate, the loan term, or both while keeping the loan amount the same. This option is ideal if you want to lower your monthly payment or switch from an adjustable rate mortgage to a fixed rate loan.

Cash Out refinancing allows you to access a portion of your home equity by increasing your loan amount. The difference between your old balance and the new one is the cash you receive. This option can help Texas homeowners access funds for major expenses but usually leads to a higher monthly payment and a higher interest rate compared to a rate and term refinance.

Cash In refinancing is less common and involves the homeowner bringing money to closing to reduce the new loan balance. This approach can be useful if you owe more than the home is worth, want to remove private mortgage insurance, qualify for a better interest rate, or keep the new loan amount within specific lending limits.

Frequently Asked Questions

What is the difference between pre-qualified and pre-approved?

Pre-qualification gives you an estimate of the loan amount you may be able to receive. This usually involves speaking with a licensed Texas loan officer who reviews your basic financial information and provides a preliminary figure. Pre-approval requires submitting a full application and verifying your credit and financial history. With a pre-approval certificate in hand, you are better positioned to negotiate and close more quickly.

What are points?

Points are prepaid interest paid at closing to lower your mortgage rate. They can be used on both fixed rate and adjustable rate mortgages, although the cost and benefit can vary by loan type. One point equals 1 percent of the loan amount.

If my credit score is low, how can I raise it?

You can improve your FICO score by making payments on time, lowering your credit balances, and limiting how often you apply for new credit.

What is a rate lock?

A mortgage rate lock is an agreement from the lender to hold a specific interest rate and point combination for a set period of time, such as 10, 15, 30, 45, or 60 days, while you move toward closing. A rate lock protects you from rising rates during that period, though you may also miss out if rates drop.

If your credit is strong and you find a Texas lender offering favorable terms, refinancing may be a smart option. Still, depending on your goals and financial situation, it is not always the right choice. Carefully compare the potential benefits and drawbacks so you can make the decision that best supports your financial well-being.

1st Alliance Mortgage LLC - NMLS 1407 | 4438 State Highway 6 S, Ste. 201, College Station, TX 77845

Notice To Texas Loan Applicants: Consumers wishing to file a complaint against a mortgage banker, or a licensed mortgage banker residential mortgage loan originator, should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, TX 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov

A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov

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