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What Are the Benefits of Refinancing?

What you'll learn: What home refinancing is and the benefits of it

EXPECTED READ TIME: 5 MINUTES

December 8, 2020

What are the benefits of refinancing?

Every so often there seems to be a lot of chatter about refinancing your home. You may hear interest rates have fallen or might want to consider consolidating your debt. Whatever your reason, it is important to consider some of the benefits of refinancing your mortgage? Some of the most popular reasons to refinance include:

Getting a better interest rate compared to your current loan
Lowering your monthly payment
Having more predictable costs each month — a fixed rate vs. an adjustable rate mortgage (ARM)
Consolidating debt
Paying off student loans
Accessing cash from the equity in your home
Improving your home
Shortening the length of your loan
Combining two mortgages into one
Eliminating your mortgage insurance

What are the different types of refinancing?

There may be different reasons to consider refinancing, so there are different refinancing options available. In general, most refinancing can be categorized into these types:

Rate and Term Refinance. This refinancing option is just like it sounds — it allows you to adjust your rate (interest rate), term (length of the loan and type), or both. For example, you could change from a 5-year ARM to a 30-year fixed rate mortgage with a low interest rate.
Cash-Out Refinance. Once again, just like it sounds — a cash-out refinance allows you to take advantage of the equity in your home and refinance to a lower interest rate while taking out cash to use for different purposes.
Home Equity Line of Credit (HELOC). A HELOC is not offered by all financial institutions but allows for refinancing with a line of credit secured with the value of your home.
Interest Rate Reduction Refinance Loan (IRRRL). An IRRRL is geared towards reducing the interest rate on a VA loan through a lower rate VA loan.

What are the steps to refinancing your home?

Refinancing your mortgage to a loan with a better interest rate can save you a significant amount of money over the life of your loan. As with most things, you need to understand if refinancing to a lower rate is right for you based on a number of factors. Refinancing your mortgage involves several steps. Just like your original purchase, you should think about the following:

Understand your goal for refinancing. Do you need to consolidate debt, reduce your monthly payment, or something else?
Determine if refinancing makes financial sense. Think about your goals, current rates, and if the fees and costs of refinancing are worth it.
Check your credit score and financial readiness. You are reapplying for a mortgage by refinancing and you'll need to ensure you are in a good financial place to refinance.
Determine how much equity you have in your home. This can be tricky, but you'll need to understand current home values in your area and how much equity you have with your current loan.
Get an appraisal on your home. You'll need an appraisal to determine the current market value of your home.
Find a lender like PenFed. Your lender should work with you and coordinate all your refinancing needs.

What are the fees involved in refinancing your home?

When you refinance your home, you’re changing from one mortgage type to another. Therefore, you should expect some fees and costs when refinancing. Here are a few you can expect:

Appraisal fees
Title fees — you'll need to document the title of the property
Attorney fees (if necessary)
Recording fees
Points — if you want to reduce the interest rate even further you can pay points like during a purchase, where one point represents 1% of the total loan amount

Is refinancing right for me?

As you walk through your needs, goals for refinancing, credit score, and more, you can work with your loan expert to determine if refinancing your mortgage is right for you. While making your calculations, you'll need to determine if you’re refinancing to reduce your monthly payment or to extend the term of your loan. If you refinance and get a lower rate, are you adding years to your payments? There may be a reason to do so, but it is always important to understand the total costs of potential total savings over time.

If your goal is to reduce to a shorter-term mortgage — let's say a 30-year fixed mortgage to a 15-year fixed mortgage — your interest rate will likely be lower, but your payments will likely be higher because you are spreading the debt over a shorter period. The interest savings over the life of the loan by reducing from 30 years to 15 years can be huge.

As you can see, the factors involved in determining if refinancing is right for you can range from interest rates, to goals, to the equity you currently have, along with many other factors — like how many more years you plan on being in that home or how many years you have left in your current mortgage.

Overall, this article illustrates some things to think about as you determine if refinancing is right for you. After you've done some homework, it's probably worthwhile to talk to your lender and review your options.

To learn more about refinancing and if it’s right for you:

the Mortgage Center

For more information about PenFed Mortgages:

PenFed Mortgage:

800-970-7766

Disclosures

¹Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 30_YEAR_FIXED_CONFORMING_POINT discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

^*Prime Rate is RV Prime Rate % as of Boat Prime Effective Date . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 1020 ELOC OO CLTV 70 Rate % for primary residences and second homes.

Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 1020 ELOC OO CLTV 70 Rate % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

Mobile homes
Co-ops or time-shares
Properties that are currently listed on the market for sale
Commercial property or property used for commercial purposes, even if a residence is part of the property
Undeveloped property (land only)
Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

Additional limitations may apply

Home Equity Line of Credit:

This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
If only minimum payments are made during the draw period, the loan balance will not decrease.
In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
Property type of Condo has a maximum CLTV of 80%.
The maximum CLTV available is dependent on credit qualification.
Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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