refinancing Guide

The opportunity to save money by obtaining a lower interest rate is one of the top reasons to refinance a mortgage loan.  Through this process, a borrower can replace their current mortgage debt obligation with one that has more favorable terms. 

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Advantages of refinancing

Mortgage payments are typically the largest portion of a monthly budget.  Refinancing allows people to save money and achieve their financial goals.  There are many ways that refinancing can do this; the most common being interest rate reduction, lowering payments, converting adjustable loans to fixed loans, cashing out home equity, payoff acceleration and dropping mortgage insurance coverage.   

As bills get paid on time, credit scores improve and with this comes the ability to get a loan at a lower rate, often saving you considerable money over time. However, refinancing involves some compromise and might not be right for everyone. Lowering the payment can involve stretching out the remaining balance over a longer term, which could mean higher interest expense over the life of the loan. Otherwise, keeping the payments the same, or even increasing them to accelerate the mortgage payoff, would result in a lower interest expense over the life of the loan.  The choice that is right for you depends on your place in life and your financial means and goals.  By beginning with the end in mind, we can help you determine which route is best for you.  Refinancing can be a great way to help you reach your goals.

common goals of refinancing

  • lower the monthly payment

    Reducing your monthly payments can be a great benefit if you’d like your house payment as low as possible. There are many reasons why having a lower monthly house payment can be beneficial, such as additional money in your savings account, a baby on the way, or maybe a new car or college tuition. Whatever your reasons, we can help you achieve your goals!

  • Lower lifetime interest costs / shorten the mortgage term

    Paying off a loan and eliminating debts as quickly as possible gives emotional and financial relief to many people. The tradeoff can be a slightly higher monthly payment, but for many people as their financial situation improves, it becomes the logical choice. We can help you achieve financial independence much quicker and easier than you might think.

  • Consolidate Debt

    For many people, debt consolidation is a great option. Trying to pay off high-interest loans and credit cards can be difficult and obviously expensive. For most people this option reduces the interest by as much as 15% or more! In addition, the new, lower interest rate is now, in most cases, TAX DEDUCTABLE! The benefits are clear: Lower payments, tax deductible interest, stress reduction and fewer payments to manage! Valorem can help you create a winning financial position all the way around.

  • Reduce risk, if you have an adjustable rate mortgage (ARM)

    Refinancing is an opportunity to lock in a low fixed rate for the life of your mortgage to protect yourself against the risks of rising interest rates on a variable rate or ARM loan. A fixed rate provides stability, allowing you to budget and plan for the future with more certainty. This makes it easier to consistently save for goals like retirement, college, or travel, since you know exactly what your mortgage payment would be. For most people, Reduced Risk = Reduced Stress.

  • Get cash out for other purposes

    The loan proceeds you receive can be used to make home improvements, pay off high-interest credit card debt, medical bills, pay for college, start a business or even to buy a second home. There are many different reasons and ways to use the money and every situation is different. As an example, a cash-out loan with an interest rate of 4.5% could finance a home improvement project on a home that is appreciating at 15% annually. That would be a very good investment!

Let Valorem guide you through the different variables to help you evaluate what refinancing option would be the most beneficial for your unique situation. Our mission is to bring superior value to all associated with our company. We sincerely hope that will be you.

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refinancing options

There are three refinance categories to consider:

Rate-&-Term Refinance (RTR)

Changes your mortgage rate, your loan term, or both. Often carries lower interest rates than cash-out refinances.

Limited Cash-Out (LCO)

Benefits are similar to the rate-and-term refinance (and some lenders consider it the same), except the closing cost is added to your loan balance.

Cash-Out Refinance (COR)

Convert a portion of your equity into cash and use that cash to pay closing costs. Increasing home values and the ability to access money to cover other expenses is a main driver behind cash-out-refinance.

key aspects to evaluate before refinancing

First things first, a person needs to understand and evaluate their financial situation. This understanding will help to determine their needs and goals.

There are four key points: your credit score, your monthly mortgage payment, the value of your home and your debt-to-income ratio (DTI).

  • Your credit score

    Credit score indicates to lenders how risky it is to lend money to you, and the more risk a lender takes, the more that lender will charge in interest and fees to compensate for that risk.

    Credit score can impact refinancing in a few ways. A low credit score can prevent someone from being approved for a new loan or can increase the cost of refinancing. With a low credit score, you could fall into a higher interest rate category and/or be required to pay mortgage insurance.

    If your credit score has improved, you may find that you’re able to get lower rates and be in a more favorable position for refinancing. Valorem can help people who might have credit score issues.

  • Your monthly mortgage payment

    For most of us, a mortgage payment is the largest monthly expense we have. Valorem can help you evaluate and decide how a refinancing process can help you achieve your budgeting goals. There are usually costs associated with refinancing; we can show you how to minimize those costs and eliminate the “cash out of pocket” to make this financial move a successful part of your future success.

  • The value of your home

    Refinancing begins by evaluating the value of your home and the equity that a person has in the home. Equity is the difference between the current value of the property and how much you still owe on your mortgage. The more equity a person has, the better your refinancing options are likely to be. If you have 20 percent or more of the home’s value in equity, you should be in excellent shape for refinancing. Let our friendly and helpful professionals use the tools at their fingertips to help you through every step of this process.

  • Your debt-to-income ratio

    Another factor to take into consideration is your debt-to-income (DTI). DTI is all your monthly debt payments divided by your gross monthly income. DTI measures your ability to repay the money you’re borrowing.

    If you were paying $1,000 a month for your mortgage and another $500 for the rest of your debts (such as credit card, auto and student loans), your monthly debts would equal $1,500. If your gross monthly income was $4,500, then your DTI ratio would be 33%.

    Most lenders require a DTI of 50% or lower, and the maximum DTI varies by the type of loan you get. A DTI that’s too high could impact your ability to refinance or limit your refinance options. Call Valorem Equity today with any questions; we are truly excited to help everyone find a solution that is right for them.

is refinancing right for me?

An important question to ask prior to refinancing:  Will this improve my life and if so, how?  

Refinancing offers many options that may include: lower payments, lower interest, less overall cost of the loan, or even pulling some cash out to be used at your discretion.  Valorem’s professional consultants can help you decide which option is best for your needs.  We have the experience and tools to quickly asses your financial situation honestly, discretely and confidentially to provide you the most comprehensive overview to help you make the smartest choice that benefits you.  Call us today! 

Check out our help page Is Refinancing Right For You - get a free estimate of your home value, a listing of comparable properties, and our Valorem CCE™ (Customized Client Experience) which is tailored using your personal data. 


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