Refinance tips

Thinking about refinancing but not sure if it makes sense for your situation?

What loan program is right for you?

Is the refi cost worth it?

Can I get some cash out from the refi and how would that affect my rate and payment?

What other benefits are there to refinancing?

Will it be a hassle or is it easy to do?

Here are some tips to help you decide.

• Best tip -- in most scenarios, for every one percent in reduction from your current rate it will reduce your current principal and interest (PI) portion of your monthly payment by about 10%. A 2% reduction to your current rate will reduce that PI by about 20%

• Bigger the loan, the greater the monthly savings--but also the greater the cost to do a refi, so make sure it's worth it

• Find your break even point--take all the costs of a no cash out refi, including those you pay out of pocket and those included in the new refi loan, and divide by the monthly PI payment decrease. That number in months is your "break even" -- how many months it takes to cover all the loan costs. If you're 36 months or less, it's likely a refi is worth doing. Example below with higher than usual refi closing costs to illustrate:

• Getting cash out on a refi will almost always have a higher rate. Just refinancing the loan balance of your current first mortgage including the closing costs will get you a better rate than doing a cash out refi--and you can always get back up to $2k or so, and skip one or two monthly mortgage payments with a no cash out refi

• Credit score and loan to value (LTV) will be a big factor in the rate you receive at closing, particularly on a conventional loan. Typically, the lower your credit score and the higher the LTV, the greater the rate. Government loans have streamline refi options with no qualifying, however a low credit score can increase the rate on a streamline refi loan. Some lenders are also stricter on the LTV on streamline refis also

• Property type and occupancy has an affect on the rate as well. Manufactured homes and condos for example will have higher rates as will investment property and even homes classified as a second/vacation home

• An appraisal my not be needed on a conventional loan refi, and government loans like VA, FHA, and USDA offer a streamline type refi program --with no appraisal required. But you must have that loan type currently to take advantage of a government streamline refi

• Timeframe before you can refi. Conventional loans have the shortest waiting period before you can refi. No cash out refis can usually be done shortly after closing on the old loan--but some lenders require a minimum of 6 months waiting. For a cash out refi the typical waiting period is a year on the current loan. For government streamline loans typically the wiat time is around 7 months

• Cash out maximum LTV. Conventional and FHA allow a max loan to value on cash out up to 80% of the appraised value, while VA will allow a cash out refi up to 100% of value. However a VA cash out above 90% LTV has a higher rate, with some lenders limiting the LTV to 90%.

• A manufactured home cash out refi is limited to 65% LTV on conventional, 80% LTV on FHA, and 100% LTV on VA. Rates will be higher on manufactured with some lenders not allowing manufactured at all

• The more you pay in lender fees including points, will reduce your interest rate. But be careful, dishonest lenders will trick you into thinking you're getting a super low rate, better than every other lender, while adding on thousands in extra fees other lenders don't typically have. They often mask & include these high loan fees in the new refi loan balance, making it harder for you to compare total cost to benefit with honest lenders

• An impound account to pay your taxes and home insurance in your payment is optional on VA and conventional at 95% LTV or less-- having an impound account is mandatory on FHA or USDA

Current average rates nationwide as of today--updated every weekday. My rates are typically a quarter percent or more, lower.

Here is my monthly payment calculator including a breakeven refinance calculator and several others that may be beneficial to you.