Everyone likes to save money, and one of the biggest expenses any of us has is our mortgage. RefiNow is a government-backed program to help lower-income borrowers refinance their mortgages under better terms so they can save up to $3,000 per year.
What could you do with that extra cash?
What is refinancing?
Refinancing is when you take out a new loan in order to pay off your current loan. When you close on the new loan, the old one will be paid off with the money from the new loan, or a portion of that money, and the account will be closed.
From that point on, everything continues under the terms of the new loan. It no longer matters how many years were left on your previous loan, what the interest rate was, or what your payments were. In order to understand both the benefits and drawbacks to refinancing, it's important to understand that the new loan completely replaces the old one.
Why do homeowners want to refinance their mortgage?
Homeowners consider refinancing their mortgages for many reasons. The most common reason is to save money. A secondary reason for refinancing is to get extra cash out of the equity in the home and use it to make home improvements. There are other, less common reasons people refinance loans as well.
According to Zillow, 19% of people who refinance do so to reduce the amount of time left on their loan. The same sources says that 4% of people refinance to change their loan type. A common reason to change loan types is to move from an FHA loan to a conventional loan once credit has improved. This allows the homeowner to save some money on insurance once the loan is paid down.
How does refinancing save money?
As we said previously, the most common reason people refinance a mortgage is to save money. If you'd like to save money on your mortgage, you may be wondering exactly how refinancing allows you to do that. There are actually several mechanisms at play that can help you save money through mortgage refinancing:
- Longer loan term — Chances are, you've had the loan you're looking to replace for a few years now. Let's say you took out a 30-year mortgage and have been paying on it for 10 years. You can now refinance with another 30-year mortgage. This would essentially be extending your loan by another 10 years. Although you'll make payments for an additional 10 years, the money owed will be spread over that time as well, lowering your monthly payment.
- Lower interest rate — Mortgage interest rates fluctuate with the state of the market. When they go down, that makes an ideal time to refinance your mortgage and lock in a better rate, which will reduce the amount of your monthly payments. However, even if rates haven't gone down since you first got your loan, that doesn't mean you can't get a better deal. If your income or credit have improved significantly since you took out your mortgage, you likely qualify for a better rate than you are currently paying.
- Debt consolidation — There's a special kind of refinancing called a cash-out refinance. Under this option, you can take out more than you owe on the home, allowing you to have money left over after the initial loan is paid back. Often, homeowners use this extra money to make home improvements. It's also very commonly used to pay off other debts. This is especially helpful to pay off high-interest credit cards. With this option, you can spread out the payments on those debts over a longer period of time, and usually pay lower interest on top of those monthly savings.
What is RefiNow?
RefiNow is a special program by Fannie Mae to help moderate income households refinance their mortgages to save money. Qualifying buyers will be guaranteed an interest rate at least 0.5% lower than their current rate. The new payment must be at least $50 per month lower than the current payment, though borrowers may see a greater reduction. That's up to $3,000 a month less than they were paying before. In addition, Fannie Mae will pay up to $500 for an appraisal if the lender requires it, to further help low-income borrowers.
Who qualifies for RefiNow?
So, if refinancing sounds like a great way to save money and RefiNow sounds like a great way to realize those savings, it's time to find out how much lower your mortgage payment can be. The first step is to find out whether you qualify for a RefiNow loan. Because of the savings and the guarantees put in place by Fannie Mae, there are some pretty strict requirements that must be met in order to qualify for RefiNow. However, the list is short and breaks down into four categories:
- Qualifying mortgages — Unfortunately, not all mortgages will qualify for the RefiNow refinance program. The first obstacle is that your mortgage must be backed by Fannie Mae. For those who don't know, Fannie Mae is the semi-official name of the Federal National Mortgage Association. It was created by congress in the 1930s to make purchasing a home easier. To see if your loan is covered by Fannie Mae, you can check their loan lookup tool.
- Additional mortgage requirements — There are a number of other requirements that your loan must meet in order to be eligible for RefiNow. First, it must be between one and ten years old. It must be a single family home, no multi-unit housing is allowed. Finally, you must have at last 3% equity remaining in the home; this means having a loan-to-value ratio no higher than 97%
- Income and credit qualifications — Like any financing option, there are requirements for your personal finances as well. To qualify for RefiNow, you'll need a credit score of at least 620. Beyond that, you'll need a debt-to-income ratio of 65% or less. Finally, your income will need to be at or below 80% of your area's median income.
- Payment history requirements — Having a credit score of 620 isn't quite enough to get approved for a RefiNow loan. You'll also need to show a responsible history of making your mortgage payments. You cannot have missed any payments in the past 6 months, and are only allowed to have missed one payment in the past 12 months.
Save Money Now
If you're ready to see how much money you can save by refinancing your loan with RefiNow, visit our loan refinancing page and get started today!
You know exactly what an extra $3,000 per year could do for your family.
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