Is it easier to refinance or get a mortgage?
Refinancing is generally easier than securing a loan as a first-time buyer because you already own the property. If you have owned your property or house for a long time and built up significant equity, refinancing will be even easier.
Your credit score gauges how likely you are to repay a loan and is usually measured on a scale from 300 to 850. To be approved for a conventional mortgage, you typically need a minimum 620 credit score. If your score is below the mid-600s, however, you may have a harder time qualifying for a refinance.
Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.
Key Takeaways. Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.
Refinancing might be the best choice if your primary goal is to lower your monthly payment or pay off your mortgage faster. If you want cash for improvements, education expenses or to purchase something you've been dreaming of, then consider a home equity installment loan.
Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent).
To qualify for a refinance, take a look at your debt-to-income ratio. The new monthly mortgage payment shouldn't be more than 30% of your monthly income. To refinance $200K over a 30-year fixed term, you'll need an income of approx. $5,200/month.
You don't need a down payment to refinance, but you'll likely have to come up with cash for closing costs. Some lenders let you roll closing costs into the mortgage to avoid upfront expenses. You can also try negotiating with the lender to waive them.
Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.
But while the Fed raised its benchmark rate fast in 2022–2023, it's expected to bring rates down at a much more gradual pace in 2024 and beyond. As a result, any mortgage rate improvements are also expected to be gradual.
Can I get denied refinance?
Not all homeowners are approved for refinancing, though. With home prices and interest rates still high, lenders are careful about who they approve. The rejection rate on mortgage refinance applications increased to 15.5% in 2023 from 9.9% in 2022, according to the Federal Reserve Bank of New York.
You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.
Our 80/20 loan program includes a first mortgage loan amount that is 80% of the purchase price, and a “piggyback” second mortgage for 20% of the purchase price. No down payment is required. Example: Purchase Price = $250,000. First mortgage loan amount = $200,000 (80%)
A home equity line of credit, or HELOC, is typically the most inexpensive way to tap into your home's equity.
Refinancing your mortgage does not have to negatively impact your home equity. Just the opposite, in fact: The goal of a refi generally is to get a new loan with lower interest rates, making repayments easier and allowing you to build equity faster.
A home equity loan generally allows you to borrow around 80% to 85% of your home's value, minus what you owe on your mortgage. Some lenders allow you to borrow significantly more — even as much as 100% in some instances.
Next Steps After Approval
Officially closing the loan can take one or more days. Federal law says that if a homeowner refinances a loan from another lender, they have 3 days to back out. This means that your lender most likely won't give you the funds until the 3-day period is up.
The cost to refinance a mortgage is usually around 2% to 6% of the loan amount. That's about the same as closing costs for a home purchase. The big difference is that a down payment isn't necessary when you refinance because borrowers already have equity in their home.
Depending on your loan type and lender, you'll likely need to meet the following refinance requirements: a current mortgage loan in good standing, enough home equity, a qualifying credit score, a moderate debt-to-income ratio, and enough cash to cover the costs of refinancing.
In addition to your monthly income from wages earned, this can include social security income, rental property income, spousal support, or other non-taxable sources of income. Your work history: This helps lenders understand how stable your income is and how likely you are to repay your mortgage.
How many months of income do you need for a mortgage?
How long do you have to be employed to buy a house? As a rule of thumb, mortgage lenders require two years of employment to qualify for a home loan. Your job history is just one of several criteria underwriters will check when you buy a home or refinance an existing mortgage.
At the same time, refinancing can be a little complicated, especially if your credit score is less than ideal or you're not completely sure what to expect. When you refinance, it means you're essentially taking out a brand new loan on your property, often for the remainder that you owe (but not always).
Product | Interest Rate | APR |
---|---|---|
30-year fixed-rate | 7.223% | 7.310% |
20-year fixed-rate | 7.100% | 7.207% |
15-year fixed-rate | 6.391% | 6.540% |
10-year fixed-rate | 6.155% | 6.346% |
In a cash-out refinance, a new mortgage is taken out for more than your previous mortgage balance, and the difference is paid to you in cash. You usually pay a higher interest rate or more points on a cash-out refinance mortgage compared to a rate-and-term refinance, in which a mortgage amount stays the same.
While McBride had expected mortgage rates to fall to 5.75 percent by late 2024, the new economic reality means they're likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year, he says.
References
- https://www.chase.com/personal/mortgage/education/financing-a-home/ways-to-reduce-mortgage-rates
- https://www.cnbc.com/select/pros-and-cons-of-refinancing-home/
- https://www.cnn.com/cnn-underscored/money/how-much-does-it-cost-to-refinance-a-mortgage
- https://byjus.com/maths/distance-between-two-points-formula/
- https://www.khov.com/blog/mortgage-points-what-are-points-on-a-mortgage/
- https://capitalbankmd.com/homeloans/calculators/refinance-calculator
- https://myhome.freddiemac.com/refinancing/costs-of-refinancing
- https://www.cnbc.com/select/what-to-do-if-denied-mortgage-refinance/
- https://www.forbes.com/advisor/mortgages/mortgage-points-are-they-worth-paying/
- https://www.cbsnews.com/news/how-much-do-mortgage-points-cost/
- https://www.lendingtree.com/home/refinance/mortgage-refinance-closing-costs/
- https://www.amfam.com/resources/articles/at-home/origination-fees
- https://www.consumerfinance.gov/ask-cfpb/what-are-discount-points-and-lender-credits-and-how-do-they-work-en-136/
- https://www.investopedia.com/mortgage/mortgage-rates/points/
- https://www.usbank.com/home-loans/mortgage/first-time-home-buyers/mortgage-points.html
- https://www.quickenloans.com/learn/what-are-mortgage-points-and-when-are-they-worth-it
- https://www.apgfcu.com/borrow/mortgages/8020-program.html
- https://www.rate.com/mortgage-calculators/when-to-pay-points-to-lower-rate-calculator
- https://www.quickenloans.com/learn/buying-house-without-your-spouse
- https://www.investopedia.com/articles/credit-loans-mortgages/090916/how-do-mortgage-lenders-get-paid-and-make-money.asp
- https://www.bankrate.com/home-equity/do-i-lose-home-equity-after-refinancing/
- https://www.experian.com/blogs/ask-experian/pros-and-cons-refinancing-you-home/
- https://www.cbsnews.com/news/do-you-lose-home-equity-when-you-refinance-your-mortgage/
- https://www.chase.com/personal/mortgage/education/financing-a-home/mortgage-points
- https://www.nerdwallet.com/mortgages/mortgage-rates
- https://www.findlaw.com/bankruptcy/debt-relief/do-s-and-don-ts-refinancing.html
- https://better.com/faq/refinancing-your-mortgage/how-will-a-refinance-affect-my-monthly-mortgage-payments
- https://www.mortgageretirementprofessor.com/A%20-%20Points/invest_in_points_or_larger_down_payment.htm
- https://www.rocketmortgage.com/learn/refinance-mortgage-requirements
- https://www.investopedia.com/terms/c/cashout_refinance.asp
- https://ibuyer.com/home-equity-refi/how-much-escrow-is-required-to-refinance.html
- https://www.bankrate.com/mortgages/mortgage-interest-rates-forecast/
- https://www.unison.com/blog/how-long-to-get-cash-out-refinance/
- https://turbotax.intuit.com/tax-tips/home-ownership/how-to-deduct-mortgage-points-on-your-tax-return/L1tUJ03Hz
- https://www.investopedia.com/terms/d/discountpoints.asp
- https://www.usbank.com/home-loans/mortgage/mortgage-calculators/mortgage-points-calculator.html
- https://www.businessinsider.com/best-mortgage-refinance-rates-today-saturday-20-2024-4
- https://themortgagereports.com/86231/down-payment-to-refinance
- https://www.cnbc.com/select/3-things-to-do-before-interest-rates-are-cut-in-2024/
- https://money.usnews.com/loans/mortgages/mortgage-rate-forecast
- https://www.investopedia.com/will-2024-mortgage-rates-fall-clues-from-wednesdays-fed-announcement-8611482
- https://www.directmortgageloans.com/mortgage/buying-down-your-mortgage-rate/
- https://www.lendingtree.com/home/mortgage/buydown/
- https://www.bankofamerica.com/mortgage/closing-costs-calculator/
- https://www.bankrate.com/mortgages/mortgage-points/
- https://www.mortgagecalculator.org/calcs/discount-points.php
- https://www.lendingtree.com/home/mortgage/do-you-need-an-appraisal-for-your-refinance/
- https://www.quickenloans.com/learn/refinance-fha-loan
- https://www.bankrate.com/mortgages/refinance-with-your-current-lender/
- https://www.clearviewfcu.org/Resources/Learn/Blog/Does-Refinancing-Hurt-My-Credit
- https://www.quickenloans.com/learn/how-many-fha-loans-can-you-have
- https://www.lendingtree.com/home/refinance/how-much-does-it-cost-to-refinance/
- https://smartasset.com/mortgage/when-should-you-pay-points-on-a-mortgage
- https://www.irs.gov/taxtopics/tc504
- https://www.lowermybills.com/learn/buying-a-home/mortgage-points-pros-and-cons/
- https://www.investopedia.com/terms/r/refinancing_risk.asp
- https://www.rocketmortgage.com/learn/how-long-does-it-take-to-refinance-a-house
- https://www.claconnect.com/-/media/files/resources-supporting/bankers-advisory-mortgage-disclosure-improvement-act-training.pdf?la=en
- https://www.bankrate.com/mortgages/when-to-refinance/
- https://themortgagereports.com/76288/basic-refinance-requirements
- https://www.nerdwallet.com/article/mortgages/discount-points
- https://www.discover.com/home-loans/articles/what-income-is-considered-when-applying-for-a-mortgage/
- https://www.experian.com/blogs/ask-experian/how-soon-can-i-refinance-my-mortgage/
- https://www.bankrate.com/mortgages/refinance-home-equity-is-important/
- https://myhome.freddiemac.com/refinancing/closing-your-loan
- https://www.bankrate.com/mortgages/fha-refinance-rates/
- https://www.visionretirement.com/articles/should-i-pay-points
- https://www.creditkarma.com/home-loans/i/how-often-can-you-refinance
- https://parishlending.com/blog/5000more
- https://homework.study.com/explanation/why-does-it-take-30-years-to-pay-off-a-150-000-loan-even-though-you-pay-1-000-a-month.html
- https://www.lendingtree.com/home/mortgage/what-are-mortgage-points/
- https://www.investopedia.com/financial-edge/0711/4-reasons-not-to-refinance-your-home.aspx
- https://www.rocketmortgage.com/learn/mortgage-points
- https://www.usbank.com/home-loans/home-equity/home-equity-loan-vs-refinance.html
- https://themortgagereports.com/25363/paying-mortgage-points-whats-the-point
- https://money.com/how-much-does-it-cost-to-refinance-mortgage/
- https://bettermoneyhabits.bankofamerica.com/en/home-ownership/buying-mortgage-points-lower-rate
- https://www.bankrate.com/mortgages/do-i-need-money-down-to-refinance/
- https://www.bankrate.com/mortgages/how-much-is-a-down-payment-on-a-house/
- https://www.lendingtree.com/home/refinance/mortgage-refinance-denied/
- https://www.quickenloans.com/learn/how-long-does-it-take-to-refinance-a-house
- https://www.chegg.com/homework-help/questions-and-answers/mortgage-80-000-2-points-mean-borrower-would-pay-closing-800-q97174757
- https://www.nerdwallet.com/article/mortgages/home-equity-loan
- https://www.rocketmortgage.com/learn/cost-to-refinance
- https://www.investopedia.com/ask/answers/09/refinancing-mortgage.asp
- https://themortgagereports.com/19085/first-time-home-buyer-guide-buying-with-a-new-job-gina-pogol
- https://assurancemortgage.com/how-soon-can-i-refinance-my-mortgage/
- https://www.ally.com/stories/home/mistakes-to-avoid-when-refinancing-your-home/
- https://www.bankrate.com/home-equity/get-equity-paid-off-home/
- https://www.primelending.com/calculators/discount-points-calculator
- https://themortgagereports.com/74024/cost-to-refinance-a-mortgage
- https://www.cnbc.com/select/what-are-mortgage-points-and-how-do-they-work/