Transferring a mortgage: everything you need to know

Transferring a mortgage: everything you need to know

Transferring a mortgage: everything you need to know

Refinance a mortgage
Refinancing your mortgage loan is the process of using a new home loan to replace an existing home loan.

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Home mortgage loans represent one of the most common types of debt for Americans — with more than $1.6 trillion in new mortgages in 2021 alone. Fannie Mae expects that number to rise further this year. Across the country, Americans now have about $17.6 trillion in total mortgage debt and, according to Experian, an average home loan of $220,380. If you’re one of those who fall into this category, you’re clearly not alone.

Many of these mortgages have a 30-year repayment term. Whether you have a short-term or long-term loan, it is important to know that you can make changes.

You may not be in the same financial situation as when you bought your home and the loan you took out may not be your best option in ten or two years. That’s where a mortgage refinance comes into play. But before going ahead with a refinancing, look for a lender that meets your needs — and will save you money in the long run.

What is a mortgage transfer?

Refinancing your mortgage loan is the process of using a new home loan to replace an existing home loan. Your new loan – which can come from the same lender or another lender – serves to pay off the old mortgage, which has been paid in full and the account is closed. You are then bound by the terms and conditions of the new mortgage loan until it has been fully repaid (or refinanced).

The refinancing process will be similar in some ways to the original process for mortgages, although it is much easier and faster for many borrowers. You’ll need to apply for and go through many of the same underwriting steps as when you first bought your home, verifying things like your credit history, income, and current debt burden. If approved, the lender will offer you specific loan terms and repayment options to choose from.

The whole process can take anywhere from a few days to a month or more depending on your home, financial situation and even the type of loan(s), so plan your timeline accordingly. You want to compare mortgage lenders to see what kind of rates and loan terms they offer and make sure you get the best deal. Your original lender may not always be the best bet.

6 reasons to transfer your mortgage

While it may not be for everyone, there are many good reasons to refinance an existing mortgage loan. Here are a few:

1. You may be able to lower your interest. The interest on your mortgage loan determines how much your loan will ultimately cost you. Even the difference of a single APR point can add up to tens of thousands of dollars in savings over the years.

If the market interest rate has fallen and/or your credit score has improved to the point that you qualify for a significantly lower interest rate, consider refinancing. It’s important to do the math here to make sure your savings make up for the closing cost of your new loan; if you can save 1% or more, it’s usually worth it.

There are several online tools that can help you determine which interest rates you might qualify for based on your current situation.

2. You can adjust a monthly amount. With refinancing you can change all the conditions of your home mortgage. If you’re struggling and need a lower monthly payment, for example, a refi can extend your loan term and give you a lower monthly payment obligation, even if your interest rate doesn’t improve.

3. You can use it to take equity out of your home. If your property is worth significantly more than you owe it, a payout refinancing allows you to withdraw some of that equity in cash. You can then use that money to pay off debt, buy new property, cover major expenses (such as tuition), or simply have a cash safety net.

With a cash-out refi, you are usually limited to a loan-to-value (LTV) of 75-80% on average. Suppose you owe $100,000 to a property that is now worth $300,000, so you have $200,000 in available equity. If your lender allows an 80% LTV, you can have a maximum new mortgage loan of $240,000. This gives you an available payout of up to $140,000.

4. You can change your mortgage type. There are many types of mortgages, including conventional and government-backed options. Some federally secured loans, such as FHA loans, have additional costs and restrictions that homeowners may want to eliminate over the years. A homeowner with a variable rate mortgage may want to switch to a fixed rate mortgage. Refinancing in a conventional loan can achieve this.

You can browse different types of loans available to you on different lender sites.

5. You can delete a sharer. If you bought a home with a partner, such as a parent or even an ex-spouse, you may want to take over the loan yourself. If your mortgage lender doesn’t allow you to release the sharer, you can always refinance yourself to a new loan (assuming you qualify).

6. You can delete a PMI requirement. When you buy a house with a conventional loan and pay off less than 20%, you usually have to pay monthly private mortgage insurance (PMI) on the loan. However, if the value of your property rises and you have built up more than 20% equity, refinancing may allow you to drop this PMI requirement ahead of schedule.

What does it cost to transfer a mortgage?

The cost of refinancing a mortgage depends on many factors, such as the type of loan, the mortgage lender, your credit score and any incentives or promotions.

Typically, a mortgage interest deduction can include:

  • Closing fees (including title fees and lender fees)
  • Points (paid to lower the interest on your new loan)
  • Appraisal of a new home (often required for cash refinancing, this will help your lender understand the current market value of your property)
  • taxes

Recent data from ClosingCorp showed that the average closing cost for a mortgage refinancing in 2020 was $3,398, including applicable taxes. Some lenders waive certain fees or may be willing to factor these fees into your new mortgage loan.

When should you transfer your mortgage?

If you’re considering refinancing a mortgage, it’s important to consider whether the savings and other benefits outweigh the costs.

  • For many homeowners, it may be wise to at least crack the refi numbers if:
  • Your credit score improves – this can unlock lower rates and better loan terms
  • Market rates have fallen – giving you access to better loan terms without changing anything else about your own creditworthiness
  • You need to withdraw cash from the equity of your home

There is no magic time frame: mortgage refinancing is right for different homeowners at different times and for different reasons. Refinancing too soon after buying the home can have some implications — such as further lowering your credit score or introducing restraint to the lender — but in general, if the numbers add up, refinancing can be a great way to extend your mortgage loan. even better attuning to you . Make sure to get quotes from lenders first.

Before refinancing, it’s important to think about how long you’ll be living in the house and how much your new loan will save you. Keep in mind how long it will take for your refi’s savings to exceed the cost of the new loan.