MORTGAGE refinance is a financial option for you to change the terms of your existing mortgage to suit your new needs or changed market conditions. Your new need could be to reduce or increase your monthly payments by changing the duration of your repayment commitment, change the type of your loan from a fixed-rate loan to an adjustable rate loan or an interest-only loan, or to take advantage of lower interest rate, and so on.
The overall legal framework governing mortgage and mortgage refinance loans in all the states of the United States except in Alaska, Hawaii, Guam, and US Virgin Islands. This article will cover the mortgage refinance scene in the state of Hawaii. In Hawaii, the interest rates for mortgage and mortgage refinance loans are the same as in the other states. The difference lies in the maximum loan limits prescribed for a loan to be considered a ‘conforming’ loan. To understand this better, we have to first understand what a conforming loan is.
GSEs are ‘government sponsored enterprises’ formed under federal law to promote availability of loans in housing, farming, small business, and other sectors involving basic interests of ordinary citizens. Home finance is the major component of the loans gives out of GSEs. The two biggest GSEs are: Freddie Mac, and Fannie Mae. Freddie Mac and Fannie Mae package their loans in a manner that makes them tradable in the secondary market. Their shares are also listed in the stock markets, and the general public can invest in them.
Understanding ‘conforming’ loans: Having understood GSEs and the loans they offer, let’s understand the following: the GSEs prescribe maximum amounts of loans for each category of housing. If the loan taken by a borrower is equal to or less than the prescribed maximum, it is called a ‘conforming’ loan. If it is higher than the prescribed maximum, it is called a ‘jumbo’ loan. Jumbo loans are not popular because they come at 0.25% to 0.50% higher interest rates than conforming loans. Also to be noted is that the prescribed limits for conforming loans are reviewed every October and may be changed or kept unchanged for the subsequent year.
The Hawaii difference
It is in the context of conforming loan limits that Hawaii differs from most other states of the United States: in Hawaii, the limits are 50% higher. Taking into account this differential, the conforming loan limits for the state of Hawaii or the year 2008 are as under:
- First mortgages in Hawaii
- One-family loans: $625,500
- Two-family loans: $800,775
- Three-family loans: $967,950
- Four-family loans: $1,202,925
- Second mortgages in Hawaii
As indicated earlier in this article, the limits are reviewed in the month of October each year and can be changed. The limits however have remained constant since 2006.
Conforming loans are loans whose amounts are equal to, or less than, the limits prescribed on a year-to-year basis by GSEs such as Fannie Mae and Freddie Mac. Though the general rules governing mortgage and mortgage refinance loans – including interest rates – are the same throughout the United States, the conforming loan limits are 50% higher in Hawaii than in most other states for one to four family loans. This means that you can obtain higher amounts of mortgage or mortgage refinance loans in Hawaii at lower interest rates than in most other states.