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Refinancing
Your First Mortgage
A refinance loan will
fall into the following
categories:
1. A rate and term
refinance, replaces the
existing loan with no cash
out.
2. A cash out refinance,
replaces the existing loan,
plus taking equity out.
3. Conforming or
non-conforming loan amount
based on set guidelines.
4. Fixed interest rate,
adjustable rate, or a hybrid
combination of both.
If you are refinancing
with cash out, some mortgage
programs may have a premium
add-on to the interest rate,
while a rate and term loan
will have standard pricing.
Conforming refinance
loans have a current maximum
of $333,700, and
non-conforming loans have an
amount over the conforming
limit. The main difference
to you as a borrower is the
interest rate. A
non-conforming mortgage will
usually have about 1/2 %
higher interest rate.
Adjustable rate loans may
not be subject to the
conforming lending limits.
The interest rate on an
adjustable loan is
determined by adding an
index to a fixed margin. The
index is a point of
reference, such as the 11th
district cost of funds, or
the one year treasury. The
index is the part of the
equation that fluctuates
according to market
conditions, while the margin
always remains the same.
Rate adjustment periods can
be monthly, every six
months, or yearly.
Also available, are
hybrid types of refinance
loans, which can offer a
fixed rate for the initial
3, 5, or 7 years, and then
the remaining term converts
to a mortgage that usually
adjusts on a yearly basis.
During the processing of
a loan, the rate is set by
the lender with what is
called a rate lock, which
can be offered in tiered
increments, such as, 15, 30,
or 60 day locks. Longer lock
periods may have a somewhat
higher rate, but while the
rate remains unlocked during
the processing of your
refinance, it is
"floating" and
will be subject to change up
or down until it is locked.
Once a rate is locked, it is
protected if rates move up,
but usually means if rates
come down, you stay at the
locked rate.
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