MORTGAGE refinance is a good option to avail of if you want to change the terms of you mortgage to suit your changed financial status and/to take advantage of reduced interest rates. In the state of Kansas, however, one has to be careful about refinance because there are many permutations and combinations available, and you might end up making a wrong choice if you are doing it all by yourself.
Kansas has many mortgage refinance lenders and brokers, all of who are competing to get business from you. In such an aggressive marketplace, there is always a chance that you might not get the best deal for you -- or that you may be in for an unpleasant surprise later -- if you were not careful. In this article, we shall look at the areas of mortgage refinance that warrant care -- and prior knowledge.
Cash-out and no cash-out refinance
Broadly, there are two types of refinance available in the market: cash-out, and no cash-out. Cash-out refinance is an option available if the market price of your property has increased since you took your original mortgage loan (also called 'purchase mortgage'). In cash-out refinance, you get a certain lump sum of cash when the refinance loan becomes operative. In no cash-out refinance, you get no lump sum, but your mortgage terms are revised to exploit existing market conditions and/or to suit your new needs.
When cash-out makes sense
If you are eligible for cash-out refinance, do nit jump at it blindly. Consider whether you need the cash. If you don't need extra cash, it's better if you invest that cash into your refinance and thus reduce your repayment liability. The commonest reasons that make cash-out refinance a sensible option, are:
- Consolidation of a high-interest debt and monthly payment credit cards.
- Meeting with costs of repairing or remodeling your house.
- Paying off other loans such as student loans, and car loans.
- Making a down payment for a vacation home or a rental home.
- Meeting with any other expense.
When no cash-out makes sense
If you are not in immediate need of cash, it's advisable to go for a no cash-out mortgage refinance irrespective of whether you are eligible for cash-out or not. No cash-out refinance means that you get more favorable terms of refinance than you would were you to take the cash. Usually, the reasons for opting for a no cash-out refinance, are:
- To reduce the interest rate and to get rid of mortgage insurance.
- Change owner-financed mortgage to regular mortgage.
- Convert from contract for deed to regular mortgage.
- Convert from rent-to-own to regular mortgage.
- Delete borrower's or co-borrower's name in divorce cases.
- Combine existing first and second mortgages.
- To buy out one partner if the property is a rental home.
Types of mortgage refinance loans
Cash-out or no-cash-out as described above are two big features of mortgage refinance. However, mortgage loan types cannot be classified on that basis. Rather, they can be classified as follows:
- Fixed-rate loans : These come with a fixed interest rate throughout the life of the loan regardless of how rates move in the market.
- Adjustable-rate loans : These loans come with a fixed interest rate for a specified number of early years, which is followed by revision in rates every subsequent year until the loan term expire.
- Interest-only loans: In this type of loan, the borrower pays only the monthly interest. Recovery of the principal amount by the lender is deferred to the time the loan period expires, when the borrower’s financial assets by the lender are sold to get the principal.
- Jumbo loans: These loans come at a higher interest rate than the types are mentioned above, and are of amounts exceeding the ‘conforming loan’ limits defined annually by the government-sponsored enterprises (GSEs) such as Fannie Mae (http://www.fanniemae.com) and Freddie Mac (www.freddiemac.com ). These limits for 2008 are:
- First mortgages
One-family loans: $417,000
Two-family loans: $533,850
Three-family loans: $645,300
Four-family loans: $801,950
- Second mortgages
- First mortgages
Now that you are knowledgeable of the basics of mortgage refinance, you have to start talking to actual lenders or brokers. It is advisable to talk to two or three parties in both categories. You can get their contact details from many directories, both online and offline. An online search through www.google.com or any other good search engine should provide you with contact details of mortgage and mortgage refinance lenders and brokers firms in your city in Kansas.
However, to make your negotiations more focused, it is necessary for you too to be armed with information on what the market can offer you. You can get approximate estimates for your specific case from online calculators available on the websites of most mortgage lenders and brokers. Four such websites are: www.mortgageloan.com, www.erate.com, www.bankrate.com, and www.interest.com in addition to many others on the Internet.
By feeding the calculators with information they ask for, you will get approximate results of what’s in store for you under the various loan types. Remember to provide the correct details, particularly your credit rating since offers are based on specific customer profiles and are not universal. Information thus gleaned from online mortgage calculators should serve as background information on which you can base your negotiations with lenders and brokers. Finally, go for the best deal you get.