Homeownership / Refinancing / Down Payment Assistance
When Should You Refinance Your Home Loan?
Reducing household spending isn’t the only way to save money on homeownership. You may also be able to significantly cut monthly costs by refinancing your home loan, especially when interest rates are low. A “refi” can offer other advantages, too. But there are also potential downsides. So how do you know if it’s right for you?
Four Reasons to Refinance
To change from an adjustable rate mortgage (ARM) to a fixed rate. With an ARM, your interest rate and monthly payment may increase or decrease as rates change. A fixed rate gives you a constant rate and payment for the life of your loan, which can offer some added peace of mind. (If your payment includes insurance and taxes, those amounts may still change.)
To lower your monthly payments. If you refinance into a lower interest rate, you can reduce your monthly payments. You can use those extra funds for other needs or even continue putting them on your home loan and pay it off early. You’ll also reduce the amount of interest you pay over the life of the loan. You may be able to get a better rate not only due to current market conditions, but also if your credit score has improved.
To consolidate higher-interest debts. You may be able to roll these balances into your refinanced home loan. You could lower the interest you’re paying on the debt and simplify your life by having just one monthly payment to make. Plus, the interest you pay on a home loan is sometimes tax deductible, unlike credit card interest. (Be sure to consult a tax professional for detail).
To change the term of your loan. Extending your loan term is another way to reduce monthly payments, although you’ll likely pay more in interest over the long run. On the other hand, you can also refinance into a shorter-term loan, which will reduce the total interest you pay. However, it may increase your monthly payment.
Three Factors to Consider First
When you refinance, you pay off your current home loan and start a new one. That means:
You’ll have to go through an approval process similar to when you first purchased your home and requalify for the new loan.
You’ll pay closing costs, which vary. You may be able to roll those costs into your new loan, or they may be waived in exchange for a higher interest rate.
You should check your current loan terms for a prepayment penalty. If there is one, make sure you factor it into your break-even calculations.
About that break-even calculation … Essentially, it compares financial details of your current loan versus the new one to see how long it will take you to recoup the costs of refinancing. Try out this break-even calculator.
How long you’ve been in your home and how long you plan to stay matter, too. If you plan to move before you hit the break-even point, a refinance might not make financial sense. And if you’ve been paying your mortgage for a fairly long time (say, 15 to 20 years), your payments may now be going to principal more than interest. But if you refi, you’ll revert to having most of the payment go toward interest. Learn more here payment/amortization calculator.
Look Before You Leap
Refinancing your home loan isn’t a decision to take lightly.
Down Payment Assistance Programs
Maybe You Don’t Need a Giant Down Payment?
Conventional wisdom is that a 20% down payment is needed to take out a mortgage. That premise is no longer a reality. You don’t always need to put 20% down to purchase a home.
Within the past few years the Federal government has offered help to encourage home ownership. In the current mortgage market, there are a bevy of low and no-down payment mortgage options available which make it simpler to purchase a home than during any other period this decade.
The following are a few of the available mortgage assistance programs. Funds needed for a down payment range from Zero to 5%. The income needed to qualify for one of these programs might be higher than you believe. It is always worth a call to inquire if you are eligible for:
The VA loan (Department of Veterans Affairs)
CalFHA (California Housing Financing Authority)
The FHA loan (Federal Housing Administration)
The FHFA, which runs Fannie Mae and Freddie Mac
The HomeReady™ program (Fannie Mae)
The Conventional 97 loan (Fannie Mae)
The USDA loan (U.S. Department of Agriculture)
The Good Neighbor Next Door program (HUD)
The newest of these low and no-down payment programs and the most flexible, is the HomeReady™ mortgage. This program allows income from all members who live in a household; and provides below-market mortgage rates to those qualified borrowers.
Annual income limits are higher than you may think and different for each program.
What is Down payment Assistance?
Down payment assistance can be a great resource for a first-time homebuyer with low to moderate income. (A first-time homebuyer is defined as an individual and his or her spouse who have not owned a home during the prior three-year period.) Funds generally come from the federal, state, county or city government; individual banks or employers may also offer grants or other types of programs.
Down payment assistance programs can often be used with other programs and seller/realtor contributions, also known as layered financing.
Is down payment assistance “free money”? No. Most of the time, many down payment assistance programs come in the form of a second mortgage that has a low interest rate or deferred payments. Grants, however, are funds that do not have to be paid back, unless you sell your home within a certain amount of time.
Having someone help us find GRANT money was the game changer.
My husband and I had talked about buying a home, but didn’t know where to begin. I was looking through our EAP and saw the Homeownership benefit. I read that there was Down Payment
Assistance Grants, I didn’t know about these types of programs, so I called the number to find out more. We had no idea where to start but everyone made it very easy and got us the Grant monies. We were in our new home within two months! Everything went so quick. Our kids LOVE having their own rooms and a yard! We were able to use our savings to buy the kids new furniture and appliances vs. on a down payment. We are so very happy and grateful for having this benefit. It is truly a blessing that I called that day!
My family and I thank you!
By using this valuable benefit, you can quickly see if you eligible for down payment assistance programs / grants plus you can also save thousands of dollars in real estate and loan fees too.
To learn more about how to assemble a down payment for your first home, call us at
1310-292-4090 or email
REACH Employee Assistance can provide coaching services and resources for refinancing and homeownership related concerns through Image Home / Flyer 1-310-292-4090
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