Conventional Loan Refinance

Conventional Loan Refinance

Interest rates affect on payment

Conventional Loan Rates are currently holding at historical lows.  Considering a Conventional Loan Refinance is on the mind of many homeowners.  In the 1980’s interest rates peaked at one point well into double digits, I was a Realtor in 1981 and rates went to 13.5 %, selling any Real Estate was difficult.  In 1995 rates dropped to 5% for the first time in almost 20 years.  Now rates as of 2016 are holding below 4% for many borrowers.  Homeowners that refinance now will save thousands of dollars over the life of a mortgage loan.  Here is an Example:

Current Mortgage:     $200,000                         Refinance:        $200,000

Percentage Rate:         4.75%                                New Rate:         3.75%

Monthly Payment:      $1043.29                      New Payment:  $926.23


The above example is considering only a refinance, no cash out and calculates only Principle and Interest, but as you can see a monthly savings of $117.06 EVERY MONTH!  A Conventional Loan refinance will have an added benefit regarding Mortgage Insurance.  All conventional loans with less than 20% equity have a mandatory private mortgage insurance, however private mortgage insurance is much more reasonable than FHA Mortgage Insurance Premiums.  There is also no Upfront Mortgage Insurance Premium on conventional loans.

Lender Paid Mortgage Insurance

There are  various conventional loan refinance programs that suits each particular refinance mortgage loan borrower. If you have less than 20% equity in your home, you can still refinance your current mortgage loan with no private mortgage insurance through a conventional loan program called lender paid mortgage insurance ( LPMI ) conventional refinance mortgage loan program .  The lender paid mortgage insurance conventional loan program does not require conventional private mortgage insurance paid by the mortgage loan borrower.  The conventional private insurance premium is built into the conventional mortgage rate.  Lender paid mortgage insurance conventional loan program is available for homeowners who have less than 20% equity in their homes.  In lieu of a slightly higher mortgage rate, the homeowner avoids the extra cost of monthly private mortgage insurance costs.

Refinance FHA Loan to Conventional Loan

Most borrowers will want to consider avoiding PMI (Private Mortgage Insurance)  for Conventional Loans or MIP for FHA Loan programs, however sometimes getting to the magic 20% equity is not currently possible.  Any borrower may want to consider refinancing their FHA loan into a conventional loan to avoid the MUCH higher cost (Mortgage Insurance Premium) on their FHA annual mortgage insurance premium. I recently priced a FHA MIP and compared it to Conventional loan PMI and it was slightly under half the cost representing over 50% savings for mortgage insurance itself.   Another consideration is thousands of homeowners purchased homes a few years back during the real estate and mortgage credit meltdown in 2008, their position and timing was right and they purchased their homes at what would be considered now very low prices.  These fortunate homeowners should look deep into how much their homes are currently worth because very likely their homes have appreciated more than 20% of value.   My home state of Florida, Nevada, California and Arizona experienced huge fallout and those that purchased homes at the lower prices may very well have seen their home values appreciate in double digits year after year.  Given this very realistic scenario these homeowners can refinance out of their FHA Loan with the current MIP (MIP for FHA is paid for the life of the loan) and immediately see savings, quite possibly have 20% or more in quite and avoid mortgage insurance altogether.  Even if there is not a full 20% equity in the home, moving out of an FHA loan should be considered.  Any Mortgage Broker or Lender can do an analysis and determine the benefits.

Conventional Loan Refinance and Cash Out

For those fortunate homeowners that purchased homes in the last few years there is a real possibility they have seen their home values increase dramatically. If this is you then you may have more equity in your home than your realize and may be eligible for a cash-out refinance mortgage loan with the Larry Stepp Team at Gustan Cho Associates.  Perhaps you have also accumulated some bad debt on Credit Cards and it slipped up on you or a life situation event happened and your monthly obligation is a bit tight.  You can get a cash out refinance conventional loan up to 80% Loan to Value on Conventional loans and reduce your monthly obligation and any interest you are paying now becomes a tax write off.  Consult a professional tax accountant for these benefits.

Guidelines for Conventional Loan Refinance

All Conventional Loan financing must meet Fannie Mae and/or Freddie Mac guidelines.  This is why conventional loan financing is referred to as conforming loans.  A minimum FICO credit score of 620 is required for all conforming loan borrowers.  The maximum loan limit for all Conventional Loans is a maximum of $417,000 unless the property is located in a high cost area (such as the San Francisco Bay area) where the Conventional Loan limits are significantly higher.  Borrowers having the higher FICO credit scores will see a benefit in the best mortgage rates. The better rates will be reserved to borrowers with 740 FICO scores or higher.  For every 20 point drop in FICO scores there will be a negative adjustment to the conventional mortgage rates.  For someone that does not have these higher credit scores you can boost your credit scores and maximize there scores.  One quick fix is to pay down your credit cards (called trade lines) to 20% or less of the credit card limit.  This will see an immediate boost in your credit scores.

The Larry Stepp Team at Gustan Cho Associates is available 7 days a week, holidays and weekends.

Larry Stepp     407-922-4755