What is a Mortgage Refinance?
A mortgage refinance is taking out a new loan to pay off your existing mortgage. This means you will be paying a new loan. Homeowners will want to refinance their mortgage to help get a better rate, reduce their monthly repayments, reduce/extend their term, convert from a variable rate to a fixed rate, or to eliminate the mortgage insurance. Or they may wish to take out equity from their home.
There are closing costs involved with a refinance, so you will want to ensure you are saving/benefiting more than this.
Refinance Details
| Metric | Current | New | Difference |
|---|---|---|---|
| Loan Amount | $308,613 | $308,613 | — |
| Monthly Payment | $2,200 | $1,900 | ↓ $300 |
| Loan Term | 28 years | 30 years | ↑ 2 years |
| Interest Rate | 7.5% | 6.3% | ↓ 1.2% |
| Total Interest | $430,587 | $375,452 | ↓ $55,135 |
Could Refinancing Save You Money?
Let us help you find the best refinance option for your situation. Speak with My American Capital to review your goals, compare available loan options, and understand your potential savings.
Get Your Free QuoteReady to Explore Your Refinance Options?
Let My American Capital help you understand your refinance options and find a loan solution that fits your financial goals.
Get Your Free QuoteReview your estimated refinance figures and contact My American Capital to discuss your mortgage goals and available loan options.
Quick Facts
| Question | Answer |
|---|---|
| What is it? | Replacing your current mortgage with a new loan |
| Why do people refinance? | Lower payment, shorter term, switch loan type, or cash out equity |
| How much does it cost? | Often 2% to 6% of the loan amount in closing costs |
| How do you know if it pays off? | Divide closing costs by monthly savings to find your break-even point |
| How long does it take? | Commonly 30 to 45 days |
| What loans do we refinance? | FHA, conventional, jumbo, co-op, renovation, non-QM equity and commercial |
| Where can we help? | NJ, NY, FL, PA, IN, CA and TX |
| Free quote | 516-327-6000 · sunnyjain@amcaps.com |
What Types of Mortgage Refinance Are There?
The main types of refinance are rate & term, cash out and streamline. You will need to decide which option is the best for you based on your goals, equity and current loan.
| Type | What it does | Best for |
|---|---|---|
| Rate-and-term | Changes your rate, term or both without taking cash | Lowering your payment or paying off sooner |
| Cash-out | Replaces your loan with a larger one and gives you the difference in cash | Renovations, debt consolidation, other large expenses |
| FHA refinance | Refinances into or out of an FHA loan | Borrowers with lower credit scores or smaller equity |
| Conventional refinance | Refinances into a Fannie Mae or Freddie Mac loan | Borrowers with solid credit and equity |
| VA refinance | Refinance options for eligible veterans and service members | Veterans looking to lower their rate or take cash out |
| Co-op refinance | Refinances a loan secured by co-op shares | NY and NJ co-op owners |
| Non-QM equity loan | Uses alternative documentation, such as bank statements | Self-employed borrowers |
| Commercial refinance | Refinances investment or business property | Landlords and business owners |
When should I consider Refinancing my Mortgage?
Typically you will want to consider refinancing if there are savings to be had that will exceed the costs of the closing costs. Common reasons to consider refinancing are if you can get a significantly lower rate, remove your mortgage insurance, you need to take out cash from your equity, or you have changed your financial position.
Indicators you may want to consider:
- You can get a better rate.
- Your credit has improved since taking out the loan.
- Your property has increased in value meaning your loan to value ratio may have reduced.
- You would like to move from a variable rate to a fixed rate.
- You plan on staying in the property past your break even point.
How Do You Calculate Your Refinance Break-Even Point?
Take your total closing costs and divide by the amount you’ll save per month. This will tell you how many months it will take to break even with your refinance. If you plan on staying in the property longer than this figure, then it may be worth it.
For example if you have $4,800 and monthly savings of $200 in closing costs, you’ll break even after 24 months. If you plan on moving within 18 months you won’t break even. If you plan on staying for 5 years you will.
You can plug your figures into our mortgage calculator. We can also provide you with a written Loan Estimate to show you what your actual costs will be.
How much does a Mortgage Refinance Cost?
The closing costs for a refinance are often between 2-6% of the loan amount. Costs typically include the appraisal, title and settlement, lenders fees and government fees. The exact amount will depend on your loan amount, state and lender.
Some costs will vary depending on the state:
| State | What to know |
|---|---|
| New York | A refinance can trigger mortgage recording tax on the new loan. Ask your attorney whether a consolidation agreement could reduce it. |
| New Jersey | New Jersey does not charge a mortgage recording tax, but attorney and title fees still apply. |
| Florida | A new mortgage note is generally subject to documentary stamp tax and intangible tax. |
For more on each state, see our pages for a mortgage broker in New York, Florida and New Jersey.
How Does a Cash-Out Refinance Work?
A cash out refinance allows you to increase your loan to replace your mortgage. Once you have increased the loan, the difference will be paid to you in cash. How much you can borrow will depend on the value of your property and the type of loan. Conventional and FHA loans will commonly allow you to borrow up to 80% of the value of your property, whereas VA loans may allow higher amounts for eligible borrowers.
For example if your property is worth $500,000 and you owe $250,000 and you can borrow up to 80%, you will be able to borrow up to $400,000, which could provide up to about $150,000 before costs. Usually a cash out refinance will have a different rate to rate & term loans. As you are borrowing against your home, think carefully before using the cash.
What Do You Need to Qualify for a Refinance?
Lenders will look at your credit, equity, income and debt. This can vary depending on the loan you are applying for.
- Credit – Typically a conventional loan will require a credit score of 620 or above. FHA guidelines can allow lower scores. Our FHA Advantage Program can allow scores as low as 550.
- Equity – Many loans will require you to have 20% equity or more. However rate & term loans may allow less.
- Income – You will need to have a stable documented income and a debt to income ratio that fits your loan.
- Appraisal – Most loans will require one, however some streamline loans may not.
- Payment History – A good history of paying your mortgage on time.
What Documents Do You Need to Refinance?
Most applicants provide the following. Requirements vary by program and lender.
- Government ID with a photo.
- Your latest mortgage statement and homeowners insurance declaration page.
- Payslips, W-2s and 2 years tax returns.
- Recent bank statements and asset statements.
- Property tax bill.
- If self employed, business tax returns and profit and loss statements or 12-24 months bank statements for alternative documentation loans.
How Long Does a Mortgage Refinance Take?
Most refinance loans take around 30-45 days to complete. This can vary depending on your lender, appraisal, title and how quickly you provide documents.
- Quote: we review your loan, equity and goals and compare options.
- Application: you submit documents and authorize a credit check.
- Rate lock: you lock your rate when you’re ready.
- Appraisal and underwriting: the lender values your home and reviews your file.
- Closing: you sign the new loan documents, and the new lender pays off your old mortgage.
Will Refinancing Affect my Credit?
Refinancing will cause a small drop in your credit score. This is due to the credit search and new account. Credit scoring models will typically group multiple mortgage searches within a short period of time as one. This means searching around to find the best lender will not cause multiple hits to your credit.
Is a Refinance Better Than a Home Equity Loan or HELOC?
This will depend on your current rate. Refinancing will replace your entire mortgage so will be a better option if rates are better than your current rate or you wish to change your loan. A home equity loan or line will create another payment and will leave your original mortgage as it is. This can be a good option if you have a low rate currently and just require a smaller amount of cash. We do offer equity loan options. We can provide you with a comparison of both options to see which is best for your goals.
Who is My American Capital?
My American Capital is the online home of American Capital Mortgage Inc. We are a licensed mortgage broker based in Orange, New Jersey. Our founder and CEO, Sunny Jain (NMLS ID 13710) has been in the mortgage industry since 1996. You can verify our loan officers’ licences via NMLS Consumer Access.
FAQs:
It is worth it if your monthly savings or other benefits outweigh your closing costs within the time you’ll keep the home. Divide your closing costs by your monthly savings to find your break-even point.
It depends on the loan. Many lenders allow a rate-and-term refinance soon after closing, while cash-out refinances commonly require you to have owned the home, or held the loan, for several months. Ask us about your situation.
Often, yes. FHA programs are more flexible on credit, and our FHA Advantage Program lists scores as low as 550. Your options and costs will differ from those for stronger credit.
Often, yes. Many programs let you add closing costs to your new loan balance, which reduces cash due at closing but increases the amount you owe and the interest you pay.
- A rate-and-term refinance changes your rate, term or both without taking cash.
- A cash-out refinance gives you a larger loan and pays you the difference in cash.
Yes. Self-employed borrowers can refinance using tax returns or alternative documentation such as 12 to 24 months of bank statements, 1099s or profit-and-loss statements.
Yes. We offer conventional investment, investor DSCR and commercial refinance options for rental and business properties.
Ready to See If Refinancing Makes Sense?
Get your free quote today Contact us or Call: 516-327-6000
Email: sunnyjain@amcaps.com
Address: 439 Main Street, Suite 102, Orange, NJ 07050
If you are buying instead, see how to get a mortgage pre approval.