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Mortgage News Matters

What’s the Difference Between Refinancing & Home Equity Loan?

One of the major benefits of owning your own home is that it can often be a major financial investment. In the long-term, real estate tends to increase in value over time due to the appreciation of the land it sits on and by building equity.

To determine the value of your property, let’s take a closer look at appreciation, how to build equity, and different ways to obtain a mortgage loan refinance.

What is Appreciation?

Appreciation represents the change in the value of your home over time. This change is typically due to the piece of land that the home sits on, rather than the structure itself which tends to lessen in value, due to typical wear and tear.

What is Equity?

A home’s equity represents the difference between the current market price of the home and the amount that is still owed on the mortgage. Equity grows as you pay down your mortgage. It is important to note that building equity takes time, as it takes a while to lower the principal balance owed on the mortgage loan.

Both appreciation and equity grow over time. This means the longer you own your home, the more valuable it becomes.

With this, homeowners who take out a mortgage to pay for their home can choose to access cash to cover events like unplanned emergencies, necessary repairs, and important updates by choosing to refinance their current mortgage loan.

Why would you want to Refinance?

The main reason homeowners choose to refinance is to lower the overall cost of their mortgage or obtain equity that has been built over time.

Borrowers can lower the overall cost of the mortgage loan by refinancing during a period of lower interest rates. Or, they can choose to access the equity they’ve built in their home get cash out to pay for upgrades, remodels, or other life expenses.

What types of Mortgage Loan Refinances are there?

The two most common forms of mortgage loan refinancing are rate-and-term refinancing, which is when a borrower exchanges their current loan for a new one, or by accessing equity in their home, which can be done by obtaining a cash-out refinance or home equity loan. Though these are the most popular forms of refinancing, there are many methods out there and it is important to understand each to assure that you are selecting the right one for your unique situation.

What is a rate-and-term refinance?

A rate-and-term refinance is when a borrower replaces their current mortgage with a new one, typically with a better interest rate. No money is exchanged in this type of refinancing, other than any costs associated with closing or funds from the new loan to pay off the existing one.

What is the difference between a cash-out refinance and a home equity loan?

A cash-out refinance pays the homeowner a portion of their home’s equity in cash. This method results in a new mortgage loan for the homeowner at a larger amount than was owed on the previous loan, giving owners cash in hand. Compared to a rate-and-term refinance, a cash-out refinance will typically result in borrowers paying a higher interest rate or more points.

A home equity loan gives homeowner’s cash in exchange for the equity they’ve built up in their property as a separate loan. They typically carry a lower interest rate than personal loans because, when you get

Home equity loans are often structured as lines of credit with variable interest rates and payments which make them less predictable. Borrowers should consider obtaining a copy of their credit report before going through the process of applying for either loan, to be sure it is the right decision for them.

What are the benefits of refinancing?

Refinancing can be beneficial to homeowners in many ways. Whether you are looking to lower your mortgage payments or access equity in your home to pay for necessary upgrades, a child’s education, or collect some extra cash for the upcoming holiday season, a refinance can help you access cash quickly.

Visit our blog post on the Top 5 Reasons to Refinance here.

To learn more about the different methods of mortgage loan refinancing and to determine which one is right for you, contact a VanDyk Loan Originator today!

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Mortgage News Matters

What is the Homebuyer Gift Tax?

Gifting money is a great way to help your child to cover a down payment or closing costs for a new home. What makes it so appealing? The Gift Tax and Lifetime Gift Tax Exclusion.

What is The Gift Tax?

The Gift Tax is the taxation of any monetary gift exceeding $15,000.

Many individuals stay within the $15,000 limit per year, per person, and easily avoid having to pay this tax. However, in the case of gifting for a down payment or closing costs on a new home, this limit can be reached quite quickly.

The solution? The lifetime gift tax exclusion. This is an additional $11.7 million that you can gift over your lifetime that is free of gift tax.

How does it work?

Once you exceed the tax-free limit of $15,000, you dip into your lifetime gift tax exclusion of $11.7 million. Which extends over the lifetime of the giver. Making it possible for you to gift down payments or closing costs for a child or relative looking to buy a home, without having to worry about the gift tax.

To learn more about the Gift Tax and Lifetime Gift Tax Exclusion, contact a VanDyk Loan Originator today!

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Mortgage News Matters

7 Questions to ask your Lender when Obtaining a Pre-Qualification Letter

Pre-qualification is an essential first step in the home buying process. It determines how much money you can borrow and gives you insight into what your mortgage options are – allowing your lender to better identify your unique needs and goals.

To help you best get prepared, we’ve listed 7 important questions to ask your lender when starting the pre-qualification process.

  1. What is your pre-qualification process? Every lender has a different process. To help you best prepare and save yourself the most time and energy, ask your lender what documentation is required before starting the process.

  2. How long can I expect the process to take? There are many factors that go into the overall timeline, such as processing, underwriting, title search, appraisal, and other verification procedures.

    By asking how long the process will take up front, you can set realistic expectations for yourself. It can also be helpful to ask what factors could delay the home closing, so you can best prepare for any likely hurdles.

  3. Are my taxes and insurance included in the payment? This will determine how much your monthly payments will be, as well as how much money you will need to bring to the closing.

  4. Is there anything that could increase my interest rate or loan payment? If a borrower chooses a fixed interest rate loan, their payment will never increase throughout the life of the loan. However, if taxes and insurance are included, your payment could change over time due to increases in HOI premiums and property taxes.

  5. Can I lock in my interest rate? And if so, how long will my interest rate be locked? Typically, mortgage rates are priced with a 30-day lock, but you can choose to delay this if you are purchasing a foreclosure or short sale. A shorter lock period means a lower interest rate, while a longer lock period results in a higher interest rate.

  6. How will my credit score affect my interest rate? This is an important question to ask, especially if you have had any changes in your recent credit scenario.

  7. How much should I expect to pay at closing? There are many factors that go in to determining your closing costs, such as your earnest money deposit, appraisal fees and seller contributions. By getting this number up front, so you can properly budget for closing day.

To learn more about the pre-qualification process and get the answers to your questions, contact a VanDyk Loan Originator today!

Categories
Mortgage News Matters

What are the Benefits of Paying with Mortgage Points?

We’ve said it before and we’ll say it again, purchasing a home is one of the biggest financial decisions one can make in their lifetime. Those home buyers who could use help with financing may want to consider using mortgage points.

What are Mortgage Points?

Mortgage points, or discount points, are fees paid to the lender at closing to reduce the borrower’s interest rate. Completely optional for homebuyers, paying for discount points can lower the monthly mortgage payments and is often referred to as “buying down the rate.”

How do they work?

Homebuyers buy points from their lender and each point costs 1% of the mortgage amount. For example, one point of a $400,000 mortgage would be $4,000. Each point lowers the rate by 0.25% and homebuyers can buy more than one point or fractions of a point.

What are the Benefits of paying with Mortgage Points?

  • Lowers interest rate for the buyer
  • Lowers monthly mortgage payments

    Keep in mind your monthly savings depend on the interest rate, the amount borrowed, and the length of the loan’s term.

To learn more about mortgage points and determine whether they are right for you, contact a VanDyk Loan Originator today!