In the Federal Reserve official refinancing guide – A Consumer’s Guide to Mortgage Refinancing, you may find several “official advises” for Home refinancing.
Amongst other advises which were covered in length on these pages, the Fed clearifies who is eligible to a mortgage:
Eligibility for refinancing a mortgage is exactly like the approval process for your first mortgage. The Lender will consider your credit score, your personal income and your other assets and debts. The current value of the property being mortgaged is also a key factor, as well as the amount you have to borrow in order to close your old mortgage.
In cases, where credit score has improved, you may get lower IR (intrest rate) which will make the refinancing more appealling.
Attention: you may have to borrow a smaller/bigger sum than what originally taken* in order to cover the running mortgage or your propety value may have increased/decreased. These factors will also affect your loan-to-value (LTV) ratio - which can make the refinancing more/less worth-while.
* Bigger sums are more common for loans that includes negative amortization (when the monthly payment is less than the interest owed).
The Fed recommends that you will ask your lender for your settlement cost papers (the HUD-1 form) in advance the loan closing. This will help you know your closing costs.
In conclusion – the FED urges you to check for the new mortgage costs, while showing 2 alternatives for “no cost refinancing”:
- The new lender covers the costs but include them in the IR. This way you will eventually pay them over-time throughout the mortgage “life”.
- Rolling the refinancing fees in the new principal, in which again you will pay the fees throughout the mortgage life.
In coclusion, the FED urges you to get all the information you need prior to refinancing your mortgage. You may also download the FED’s guide in PDF from their site.
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