Rate & Term Refinance Options
Options for all credit!
As a homeowner you have probably heard the term (rate and term refinance) before I am sure. But what exactly does that term mean? To keep it simple, Fannie Mae does not allow consumers any more than 2% cash back when refinancing their mortgage. If an amount of cash going back to the homeowner exceeds 2% it is considered to be a cash out transaction. When the amount is 2% or less under the Fannie Mae guidelines it again is considered a rate and term refinance.
When is this process used, and how often can you do a rate and term refinance?
WHEN YOU ARE LIKELY TO DO A RATE AND TERM REFINANCE.
1). When you need to just lower your mortgage rate.
2). When you taking someone off the mortgage, such as through a divorce.
3). Refinancing to remove PMI Insurance.
4). Refinancing to shorten the term or extend the term of the mortgage.
5). Help improve your credit rating is another good reason.
All of the above are good examples of doing a rate and term refinance, but keep in mind there will always be closing cost associated with refinancing. So the benefit of a rate and term really needs to be considered to offset the cost of refinancing. If for some reason you are going to need more than 2% of cash back. Consider refinancing using the cash out option. This programs allows you to borrow up to 80% of your homes equity under the Fannie Mae guidelines.
Keep in mind, you can exceed the 80% cash out rule, however you will have to pay PMI on the first mortgage loan that exceeds more than 2% of the new loan amount. To avoid the PMI charge, many lenders now offer what is called an 80/20 combo mortgage. This happens when the loan is broken into tow parts. You will have a 80% first mortgage and a 20% second mortgage.