If you’re looking to refinance at a lower rate, cash out some equity, or change loan terms, start by comparing the best mortgage refinance lenders that offer competitive rates and fast approval.
Personalized loans to fit your financial situation
Axos Bank offers a pure online experience, and you can own a home without meeting a mortgage specialist in person. The bank also uses a leading technology that pre-qualifies your application and gives you an underwriting decision in approximately 10 minutes or less.
What we like
- Personalized home loans to fit your current financial situation
- Interest-only loans for lower monthly payments
- Pure online experience from start to closing
- Earn 3% cash back annual credit on mortgage payments
- Lender fee waived for customers and non-customers1
What we don't
- Cash back on loan requires an Axos checking account
- Does not offer in-person services
1Axos Bank™ will waive its lender fee ($995) or reduce its lender fee on new first lien mortgage loans under the following conditions: 1) The customer must have an existing or open a new Axos Bank™ Checking Account during the loan application process; AND 2) the new mortgage loan must be for $250,000 or more; OR 3) if the new mortgage loan is less than $250,000, Axos Bank™ will reduce its lender fee by $200 if the customer has or opens a new Axos Bank™ Checking Account during the loan application process. The customer will be responsible for all third party fees and all prepaid items. The $2,500 average savings is based on a national average for lender fees presuming a $250,000 loan amount and 1% origination fee.
Wide range of mortgage products that will fit your needs
New American Funding focuses on personalizing loans to the borrower's situation. If you're self-employed, have lower than average credit scores, or even a first-time home buyer, the lender will work with you to customize the most suitable product.
What we like
- Customized loans to meet your financial situation
- Helping underserved communities become homeowners
- Variety of loan products for lower credit score borrowers
- Consider self-employed and freelancers for a mortgage
- Complete transparency on total mortgage costs
What we don't
- No automatic quote or online approval
- Not available in New York and Hawaii
Customer centric lender with fast closing times
Academy is a direct lender who loan processesing, underwriting, and funding are handles in house. It also has flexible mortgage requirements and specialists who can guide you through out the mortgage process.
What we like
- Provides competitive rates
- Fast closing times because of in house loan processing
- Dedicated loan officer to help you from start to end
- Wide selection of loans to match your needs
- Flexible requirements to fit your financial situation
What we don't
- Not available in New York
- Application is not completely online
Why refinance your mortgage?
The main reason why people refinance their mortgages is to save some money in the end. There are various reasons why homeowners refinance their mortgages:
To lower interest rates
Refinancing your mortgage to a lower rate means you’ll have lower monthly payments, and reduced interest rates also enhance your chances of building equity in your home.
For instance, if you have a fixed-rate mortgage of 30 years (loan term) on a $100 000 home, at a 5.5% interest rate, then your total principal payment plus interest payment is $568. If your interest rate on the same loan reduces to 4.1%, then your monthly payment reduces to $477.
To calculate your mortgage, you need to use the formula: M=P[r(1+r)^n/ ((1+r)^n)-1)]
- M=Total monthly mortgage payment
- P=principal amount
- r=interest rates
- n=number of monthly payments.
To reduce the term of the mortgage
If you refinance from a 30-year term mortgage to a shorter term, such as 15 or 20 years, this will increase your monthly payment (even with a lower interest rate), but decrease the overall interest you pay over the life of the loan.
To convert from ARM to Fixed rate loan
The annual interest rates of adjustable-rate mortgages (ARM) are often uncertain. You can refinance to convert the ARM to a fixed-rate loan, so you can worry less about the unpredictable increase in interest rates.
To tap into home equity
Homeowners may refinance to access the equity in their home (cash-out refinancing) to help them remodel their home or pay for other expenses. Some lenders allow borrowers to tap up to 80% of their home equity as a cash-out refinance loan.
How does mortgage refinancing work?
Just like you did with the original mortgage, refinancing requires you to apply for the loan. Depending on your lender, you can apply online through the portal or visit their offices in person.
Some of the things to look out for include:
- Adjustable-rate mortgage (ARM): Interest rates are usually applied on the remaining balance, and rates keep varying throughout the loan term. Initially, the interest rates are fixed for a certain period of time, and later they are reset periodically. ARM can also be referred to as a variable rate mortgage.
- Fixed-rate mortgage: It offers an interest rate that is set and remains unchanged throughout the term of the loan. The monthly payment does not change, which makes it easier for borrowers to budget
- Pre-qualified: The process where the lender evaluates your ability to qualify for refinancing. The process of prequalification’s helps to determine how much you can borrow and the applicable loan terms.
- Co-borrower: An individual who shares the liability for repaying the loan. In mortgage refinance, co-borrowers details may appear in the house’s title. Co-borrowers can be used on refinancing loans that involve married borrowers to help a borrower qualify for a loan that he/she would others be disqualified.
- Interest rates: The amount a lender charges on the mortgage. This amount is often expressed as a percentage of the principal amount. Interest rates are noted annually and termed as annual percentage rate (APR).
- Origination fee: A lender charges a fee to close the loan and often expressed as a percentage of the loan. Some lenders do not charge an origination fee to refinance a mortgage.
How much does refinancing cost?
The costs for refinancing your mortgage depends on your lender, loan amount, and state. The average closing costs for refinancing a mortgage is between 3% – 6% of the principal amount.
For instance, if you are approved for $200, 000 and your lender charges a 4% origination fee, you may end up spending at least $8,000 on refinancing costs. Refinance costs do not include mortgage insurance, house insurance, and property taxes, as they are usually set up during your original loan application.
Some of the costs incurred during refinancing include:
- Home inspection fee
- Origination fee
- Refinance application fee
- Title search fee
- Mortgage points fee
- New home appraisal fee
- Lender’s attorney review fee
Even with all the refinancing costs, you need to see if the lower interest will more then offset the costs of refinancing.
Requirements for mortgage refinancing
There are different requirements from lenders. However, the basic requirements include:
- Proof of maintaining the original mortgage: Most lenders need evidence that shows you have been servicing your original mortgage faithfully within the last 12 months.
- Equity: You need to prove that you own equity in your home. Most lenders require home equity between 10% to 20%.
- Income: lenders need proof that you have a regular and consistent income. By looking at your debt to income ratio, they can determine that you will be able to pay your existing bills and debts. Most lenders require a debt to income ratio of 36% and below.
- Credit status: Each lender has a specific credit limit requirement. You need to have a good credit score and history for better terms and interest whereas lower credit scores may lead to higher interest rates on loans. Government-backed mortgages offer lower credit scores compared to conventional loans with an average credit score between 500 and 680.
- Refinance wait period: While most lenders do not provide a limitation on the number of times to refinance your loan, some of them require a waiting period between loans. For instance, if you are refinancing a VA, USDA, or FHA mortgage, you may have to wait between 6 and 12 months to apply for another.
Types of mortgage refinance
There are three types of refinancing mortgages
- Cash-out refinance: The refinance mortgage loan amount is larger than the outstanding amount on the previously existing debt. This helps borrowers to get some extra money in hand from the home mortgage. You will tap into your house equity when cashing out.
- Rate and term refinance: This is the most common way to refinance a mortgage, which replaces the original mortgage interest rates and loan terms. This helps borrowers to lower their term length and interest rates (if the current rates are lower) on the existing mortgage.
- Streamline refinancing: Some of the streamlined refinance loans, such as FHA and VA loans, do not follow the routine credit check and appraisal, saving hundreds of dollars. Most streamlined refinance loans require borrowers to prove that the loan offers a financial benefit by reducing interest rates or monthly payment amounts.
Choosing a mortgage refinance lender
Choosing a lender depends on a number of factors, such as interest rates, costs involved, loan term, and available refinance options. While it is always easier to refinance with your original mortgage lender, you need to be sure it’s the best deal compared to other lenders. Request a loan estimate from the lenders and compare the rates. If there is room for negotiation, you can always negotiate to reduce the fee.