Today we’ll take a good look at On Q Financial, a direct mortgage lender based in Tempe, Arizona that wants to make getting a mortgage simple.
In fact, their slogan is, “Mortgages Simplified,” so my guess is their loan process is pretty straightforward and possibly easier than the other guys.
That could have something to do with their digital mortgage offering that promises a faster and easier experience, complete with a smartphone app that can do most of the heavy lifting.
While they’ve only been around since 2005, they’re growing rapidly and making a name for themselves in the industry.
They weren’t in the top 100 based on 2018 HMDA data, but now refer to themselves as a top-50 lender.
On Q Financial Quick Facts
Direct mortgage lender headquartered in Tempe, Arizona
Founded in 2005 by former mortgage loan officer John Bergman
A top-50 mortgage lender with more than 550 employees and 70 locations
Offers a digital mortgage experience that allows you to apply via smartphone app
Specialize in home purchase loans but also offer refinancing
Licensed in 47 states and DC (not available in Hawaii, New Jersey, or New York)
Helped over 10,000 families purchase a home in 2019
On Q Financial Digital Mortgage Process
On Q Financial prides itself on making the often-agonizing home loan process fast and easy, so you should expect a better experience than what you may have heard or are used to.
Their “Mortgages Simplified” digital mortgage solution allows you to submit income, asset, and employment information through your smartphone thanks to an app called Simplicity, available for both Apple and Android devices.
Aside from offering a full mortgage application via the app, it has various mortgage calculators, document scanning and uploading capabilities, and provides real-time loan status notifications.
Instead of having to gather your W-2 forms, paystubs, and bank statements, you can link your financial accounts and import everything right into the loan application.
They say this cuts down the processing time by four to seven days so you can close your home loan a lot quicker and with less work.
It’s also more secure than dealing with paperwork and probably more accurate too, leading to fewer duplicate requests from underwriters.
On Q Financial also offers full mortgage pre-approvals that go be beyond a basic pre-qualification with actual upfront underwriting.
Those who want a face-to-face or more personal experience are welcome to visit a local branch or get on the phone with a loan officer as well.
You can also apply right on the website and select a loan officer by name if one is known to you or if you’ve been referred to a specific individual.
All in all, they make it pretty easy to get going on your mortgage loan application.
What On Q Financial Offers
Home purchase loans, renovation loans, construction loans, and refinance loans
Conventional loans, government home loans, and jumbo loans
Down Payment Assistance (DPA) and interest-only also available
Various fixed-rate and adjustable-rate loan programs to choose from
Lending on all residential property types including manufactured homes
One great thing about On Q Financial is the breadth of loan options available – they’ve basically got you covered no matter what type of real estate transaction is involved.
With regard to home loan type, they offer both conventional loans backed by Fannie Mae and Freddie Mac, and government home loans backed by the FHA, USDA, and VA.
They are big on home purchase loans thanks to their strong relationships with local real estate agents, and equally proficient when it comes to refinancing a mortgage, including cash out refinances.
There are also several down payment assistance (DPA) options available for first-time home buyers with limited assets.
Beyond that, they offer home renovation loans, such as an FHA 203k loan and Fannie Mae HomeStyle loan, along with construction loans.
Their builder division specializes in one-time close (OTC) construction loans, which are available via conventional, FHA, USDA, or VA.
The loan covers both the interim construction costs and the eventual mortgage, converting from a construction loan to a permanent home loan once construction is completed.
They also offer financing on manufactured homes and the Native American Home Loan HUD184.
On Q Financial can also go BIG if you need jumbo loan financing, with loan amounts as high as $5 million and low down payment options.
In the non-QM space, they also offer interest-only financing, which isn’t available from too many lenders these days.
You can get a fixed-rate mortgage with several different terms (10, 15, 20, 25, and 30 years) or an adjustable-rate mortgage such as the 5/1 ARM or 7/1 ARM.
And they lend on primary residences, second homes (vacation properties), and investment properties.
On Q Financial Contact-Free E-Closing
On Q Financial has been offering a hybrid closing option for several years, combining some online document submission with in-person signings.
But because of the COVID-19 pandemic, they realized it was urgent to develop a completely remote closing solution.
Their new E-close option is totally contact-free and allows you to close remotely from just about anywhere.
It relies upon secure document signing and automated verification, and certain core technology like an internet connection and webcam for identity verification.
When the pandemic first started, they were able to close a refinance loan for a borrower who was stranded in Costa Rica, completely online.
On Q Financial Mortgage Rates
In terms of interest rates, On Q Financial says they offer “low, low rates and excellent service.”
Just how low is a bit of a mystery because they don’t make mention of their rates otherwise anywhere on their site.
I prefer a lender that openly advertises their mortgage rates, even if they’re just generic rates, to get a better feel for their competitiveness.
For me, doing so shows they’re more transparent than other lenders. Unfortunately, On Q Financial chooses to keep their rates close to their chest.
The same goes with lender fees, so we’re in the dark when it comes to rate and fees.
In other words, take the time to shop around with other lenders if you speak with On Q to ensure they are competitive.
While easy and fast is good, a cheaper mortgage might be even better long-term.
On Q Financial Mortgage Reviews
They have a very strong rating on Zillow, a whopping 4.98 out of 5-stars, which is pretty much as close to perfection as you can get.
It’s based on nearly 1,800 customer reviews, many of which indicate that the mortgage rate was lower than expected.
They also have a 4.8 out of 5-star Google Review Rating based on 140 ratings from past customers.
Since 2005, they’ve been an accredited business with the Better Business Bureau, and currently have an A+ rating.
They have 1 out of 5 stars on the BBB, but only on a very small sample size of four total customer reviews.
Many of their individual loan officers also come highly rated via SocialSurvey.
On Q Financial Pros and Cons
The Good Things
A fast digital mortgage process
Free smartphone app for both Apple and Android
Tons of loan programs to choose from
Ability to update pre-approval at any time while shopping different homes
E-closing option for contact-free loan fundings
Free mortgage calculators on site
A multilingual website (Spanish, Russian, Simplified Chinese)
Average mortgage rates fell just a little last Friday. But last Thursday’s massive jump means they finished that week — and last month — higher than when they started them.
First thing, it was looking as if mortgage rates today might again barely budge. But that could change as the hours pass.
Markets will be closed tomorrow for the Independence Day holiday. And we’ll be back on Wednesday morning. Enjoy your celebrations!
Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.129%
7.158%
Unchanged
Conventional 15-year fixed
6.638%
6.651%
Unchanged
Conventional 20-year fixed
7.506%
7.558%
Unchanged
Conventional 10-year fixed
6.997%
7.115%
Unchanged
30-year fixed FHA
6.672%
7.303%
Unchanged
15-year fixed FHA
6.763%
7.237%
Unchanged
30-year fixed VA
6.729%
6.937%
Unchanged
15-year fixed VA
6.625%
6.965%
Unchanged
5/1 ARM Conventional
6.75%
7.266%
Unchanged
5/1 ARM FHA
6.75%
7.532%
+0.11
5/1 ARM VA
6.75%
7.532%
+0.11
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock a mortgage rate today?
Recent reporting in the financial media makes me think mortgage rates are unlikely to see any significant and sustained falls until at least the fourth (Oct.-Dec.) quarter of 2023 and probably not until 2024.
And that’s why my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCK if closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time last Friday, were:
The yield on 10-year Treasury notes edged down to 3.82% from 3.85%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mostly lower. (Good for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices inched up to $70.61 from $70.25 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices rose to $1,930 from $1,919 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — climbed to 84 from 80 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today might again hold steady or close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
What’s driving mortgage rates today?
Currently
To see sustained lower mortgage rates we need to see the inflation rate halving, the economy weakening, and the Federal Reserve stopping hiking general interest rates. And none of those looks likely anytime soon.
Some progress is being made on inflation. But not enough.
And the economy is showing extraordinary resilience. Last week’s gross domestic product (GDP) headline figure was 50% higher than many expected.
Meanwhile, the Fed seems highly likely to hike general interest rates by 25 basis points (0.25%) on Jul. 26. And there may well be at least one more increase after that in 2023.
Recession
As I’ve written before, our best hope for lower mortgage rates is a recession. That should weaken the economy, reduce inflation and perhaps cause the Fed to at least hold general rates steady.
Economists have been predicting an imminent recession for ages. And, not so long ago, I bought that line and was expecting one at any moment.
But, now, many big hitters aren’t expecting a recession until 2024. Yesterday, CNN Business listed a few of those making that prediction:
Bank of America CEO Brian Moynihan
Vanguard economists
JPMorgan Chase economists
Of course, others disagree, as economists always do. Some think a recession will still land later this year. And others believe there will be no recession at all.
This week
There are a few reports this week that could send mortgage rates up or down a bit. But Friday’s jobs report is the one most likely to have a decisive impact.
The consensus among economists is that the report will show 240,000 new jobs created in June compared with 339,000 in May. Anything lower than 240,000 might see mortgage rates tumble, which would be great.
However, we’ve witnessed economists making similar predictions for employment several times over recent months. And, nearly every time, their forecasts have greatly underestimated the resilience of the American labor market and therefore the American economy.
Of course, they might be right this time. Let’s hope so. But I shouldn’t hold my breath if I were you.
Please read the weekend edition of this daily report for more background on what’s happening to mortgage rates.
Recent trends
According to Freddie Mac’s archives, the weekly all-time low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Jun. 29 report put that same weekly average at 6.71%, up from the previous week’s 6.67%. But Freddie is almost always out of date by the time it announces its weekly figures.
In November, Freddie stopped including discount points in its forecasts. It has also delayed until later in the day the time at which it publishes its Thursday reports. Andwe now update this section on Fridays.
Expert mortgage rate forecasts
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the current quarter (Q2/23) and the following three quarters (Q3/23, Q4/23 and Q1/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were published on May 23 and the MBA’s on Jun. 21.
In the past, we included Freddie Mac’s forecasts. But it seems to have given up on publishing those.
Forecaster
Q2/23
Q3/23
Q4/23
Q1/24
Fannie Mae
6.4%
6.2%
6.0%
5.8%
MBA
6.5%
6.2%
5.8%
5.6%
Of course, given so many unknowables, the whole current crop of forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Find your lowest rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change, unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
A reverse mortgage may help older Americans who find they need more money in retirement. It’s common for inflation and rising medical costs to be issues. A reverse mortgage allows them to convert some of their home’s equity into cash, which can benefit their financial situation.
Protections established over the past few years by the U.S. Department of Housing and Urban Development (HUD) focus on lowering the risk previously associated with reverse mortgages. What’s more, the federal and state governments have taken aim at deceptive marketing practices that can minimize the complex aspects of reverse mortgage agreements.
That said, it’s wise to proceed with caution. There are still considerable cons to reverse mortgages, and borrowers may be unaware of the finer points. One important fact: It is possible to lose one’s home if you don’t comply with all the loan terms. Take a closer look at this topic here.
Why Do People Choose a Reverse Mortgage?
A reverse mortgage allows qualifying homeowners age 62 and older to convert part of the equity they’ve built up in their primary residence into money they can use to pay off their existing mortgage or for any other expenses that come up in retirement (from health-care costs to home repairs).
The big selling point for reverse mortgages is that the loan usually doesn’t have to be paid back until the last borrower, co-borrower, or eligible non-borrowing spouse dies, moves away, or sells the home. And when it is time to repay the loan, neither the borrower nor any of the borrower’s heirs will be expected to pay back more than the home is worth.
Main Types of Reverse Mortgages
There are three basic types of reverse mortgages. The most common is a home equity conversion mortgage (HECM), which is the only reverse mortgage insured by the U.S. government and is available only through an FHA-approved lender. An HECM can be used for anything, but there are limits on how much a homeowner can borrow.
There are also proprietary reverse mortgages, which are private loans that may have fewer restrictions than HECMs — including how much a homeowner can borrow.
And there are single-purpose reverse mortgages, which are typically offered by nonprofit organizations or state or local government agencies that may limit how the funds can be used. Most of the time, when someone refers to a reverse mortgage, though, they’re talking about an HECM.
Reverse Mortgage Terms to Know
There are safeguards in the reverse mortgage process that protect borrowers, but there are also loan terms borrowers are required to uphold or risk defaulting and potentially triggering a mortgage foreclosure. They include:
Staying Current With Ongoing Costs
Borrowers must stay up to date on property taxes, homeowners insurance, homeowners association fees, and other costs, or they could risk defaulting on the loan. An assessment of a borrower’s ability to pay for those ongoing expenses is part of the reverse mortgage application process, and if it looks as though money might be tight, a lender may require a borrower to set up a reserve fund, called a “set-aside,” for those costs. (In this way, it’s akin to an emergency fund, which is there to cover expenses if needed.)
Maintaining Full-Time Residency
Borrowers (and eligible non-borrowers) must use the home as their primary residence — the home they occupy for most of the year. If they move out of the house or leave the home for more than six months, or receive care at a nursing home or assisted living facility for more than 12 consecutive months, it could result in the lender calling the loan due and payable.
The lender also may choose to accelerate the loan if the borrower sells the home or transfers the title to someone else, or if the borrower dies and the property isn’t the principal residence of a surviving borrower.
Keeping the Home in Good Repair
Because the home is collateral and may have to be sold to repay the loan, lenders may require borrowers to do basic maintenance that will help the property keep its value (e.g., repairing a leaky roof or fixing a problem with the electrical system). If an inspector feels the home is not being properly maintained, the lender could take action.
What Happens If a Reverse Mortgage Borrower Defaults?
If the homeowners default, the first thing that could happen is that future loan payments may be stopped. And if the problem isn’t corrected within the lender’s stated timeline, the loan may become due and payable, which means the money the lender has distributed to the borrower, plus any interest and fees that have accrued, must be repaid. In that case, the borrower typically has four options:
• They can pay the balance in full and keep their home.
• They can sell the home for the lesser of the balance or 95% of the appraised value and use the proceeds to pay off the loan.
• They can sign the property back to the lender.
• They can allow the lender to begin foreclosure.
No matter what the homeowners decide to do, the process could take months to complete. HECM lenders may offer borrowers additional time to fix the problem that put them into default, or the borrowers may qualify for extensions or a repayment plan.
But in the meantime, there could be other implications — if the homeowners are no longer getting money they need to pay their bills or if the lender reports the default to credit monitoring agencies — that could affect the homeowners’ credit scores.
A Few Alternatives to Consider
The advertisements some lenders use to sell their reverse mortgages can be convincing, and some seniors may see these loans as a convenient way to get some extra cash or as a much-needed lifeline.
But, as with any financial decision, there are advantages and disadvantages — and alternatives — to be considered. There are other ways homeowners may be able to get help that could be less complicated and less limiting than a reverse mortgage.
Here are a few options:
• Borrowers may wish to tap into their home’s equity with a traditional home equity loan or home equity line of credit. They’ll have to make monthly payments, and their income and credit history will be considered when they apply, but the terms may be more flexible and the overall cost may be lower than a reverse mortgage. Because the home is used as collateral, there’s still a risk of foreclosure.
• Low interest-rate personal loans might be another option for homeowners who qualify for a competitive interest rate based on their income and credit. Borrowers who don’t have much equity in their home may choose to look into this type of loan, which is unsecured and is paid out in a lump sum. While foreclosure is not a worry with a personal loan, there still may be consequences to the borrower’s credit rating if they don’t uphold the loan terms.
• Borrowers who are struggling to keep up with their bills in retirement may find that refinancing a mortgage with a new, lower-cost mortgage might be an option to help them lower their monthly payments and stay on track with their budget.
Or, if they need extra cash right away and can get a low enough interest rate, they may want to look into a “cash-out refinance,” which would involve taking out a new loan for a larger amount based on the equity they’ve built up during the years they’ve lived in the home.
Unfortunately, no matter which type of loan homeowners might choose, there could be risks.
The government requires a counseling session for reverse mortgage borrowers for a reason: They’re complex, and it can be helpful to have someone cover all the rules and costs involved.
Homeowners also may want to pay a financial advisor and tap their expertise about what type of loan, if any, fits with their needs, goals, and where they are in their retirement.
Though reverse mortgages are available to homeowners starting at age 62, borrowers who expect to have a long retirement may choose to wait until they’re older to tap into their home equity, so they don’t risk running out of money in their later years.
How SoFi Can Help
For many retirees, the equity they have in their home is their biggest asset. Armed with knowledge about the pros and cons of each type of loan and a long-term plan, borrowers can better protect that asset and their financial security.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: Simple, smart, and so affordable.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
If you live in State 48, there’s a pretty good chance you’ve heard of “VIP Mortgage,” either because you’ve been a customer or you’ve seen one of their ads.
Regardless, they are a major mortgage force in Arizona, having closed billions in home loans there just last year alone.
In fact, they were a top-10 mortgage lender in Arizona based on total volume, only falling behind the biggest mortgage lenders out there.
Those names include Chase, loanDepot, Quicken Loans, and Wells Fargo, along with fellow Arizona lender NOVA Home Loans.
So it’s clear they’ll be a consideration for you if buying a home or refinancing a mortgage in Arizona. Let’s learn more about the company.
VIP Mortgage Fast Facts
Direct-to-consumer retail mortgage lender located in Scottsdale, Arizona
Founded by Marine veteran Jay Barbour in 2006
20+ brick and mortar branches and hundreds of licensed loan officers nationwide
Funded more than $2 billion in home loans last year
More than 80% of total loan volume came from their home state of Arizona
Currently licensed in 24 states including Hawaii
VIP Mortgage funded more than $2 billion in home loans last year, with a whopping $1.76 billion coming from the state of Arizona.
They did another $130 million or so in the state of Colorado, with the remainder coming from a variety of states, mostly located on the West Coast.
At the moment, they appear to be licensed to do business in 24 states, including:
The company has physical branches in Arizona, California, Colorado, Hawaii, Indiana, Texas, Washington, and Wisconsin.
How to Apply with VIP Mortgage
You can apply for a home loan directly from their website
Or schedule a consultation first with one of their loan officers
They offer a digital mortgage loan experience powered by Floify
It allows you to complete most tasks remotely via smartphone or computer
While they seem to prefer that you speak to a loan officer first to go over your goals and available options (a loan officer directory is on their website), you can freely apply on your own as well.
If you visit their website, you can simply click on “apply,” at which point you’ll be asked if you’re already working with a loan officer.
Assuming the answer is yes, simply enter their name and it will populate. If no, you’ll be piped over to their digital loan application.
It appears they use Floify’s digital mortgage product, which lets borrowers fill out the app from anywhere on any device.
Additionally, borrowers can review and eSign disclosures from a web-based portal, link financial accounts, and scan/upload supporting documentation.
Once your loan is submitted, you can access the borrower portal at any time to see your to-do list, check loan status, or get in contact with your lending team.
They make it easy to apply and monitor your loan status from start to finish.
Loan Types Offered by VIP Mortgage
Home purchase loans and refinance loans
Home renovation and construction loans
Conventional conforming loans backed by Fannie Mae and Freddie Mac
Government loans: FHA/USDA/VA
Jumbo loans
Reverse mortgages
HUD-184 loans (for Native Americans)
Down payment assistance programs
“Inclusive Loan”
Various fixed-rate and adjustable-rate mortgage options available
VIP Mortgage offers tons of different home loan programs, including home purchase loans, refinance loans, renovation loans, and construction loans.
Additionally, you can get a reverse mortgage if 62 and older, or a HUD-184 loan if a Native American.
They’ve also got a proprietary loan program called the “Inclusive Loan” that is geared toward home buyers who experienced a recent foreclosure, short sale, or bankruptcy.
In terms of loan programs, you can get a conventional loan, including conforming loans and jumbo loans, or a government-backed loan such as an FHA loan, USDA loan, or VA loan.
VIP offers both fixed-rate and adjustable-rate mortgages with various loan terms, including a 30-year fixed, 15-year fixed, 5/1 ARM, 7/1 ARM, and so on.
So you shouldn’t be at all limited when it comes to loan choice if you choose to go with VIP Mortgage.
VIP Mortgage Rates
Like many other mortgage lenders, VIP Mortgage chooses not to advertise their mortgage rates on their website.
While there are many reasons not to advertise rates, such as the extra work it takes and the fact that such rates are just ballpark estimations, they can be helpful to get a feel for pricing.
Nonetheless, you can still easily get loan rates if you contact a loan officer directly. And it should be a more accurate quote since you’ll need to provide them with specific loan details first.
It’s also unclear what they charge in the way of lender fees, such as a loan origination fee, underwriting, processing, and so on.
You’ll need to inquire with them directly to determine that. Once you obtain that key information, be sure to shop around with other lenders to see how competitive they are.
VIP Mortgage Reviews
On SocialSurvey, VIP Mortgage has a 4.90-star rating based on nearly 16,000 reviews from its past customers.
The company also landed in SocialSurvey’s Top 10 list for customer satisfaction in the medium lender division back in 2018
They have a 4.96-star rating out of 5 on Zillow, based on roughly 1,100 customer reviews. That’s clearly beyond excellent and a testament to their exceptional customer service.
A good proportion of the reviews on Zillow indicated that the interest rate received was lower than expected, if you’re curious about pricing.
VIP Mortgage is an accredited business with the Better Business Bureau (BBB) and currently enjoys an A+ rating. They also have a 4.33-star rating on the BBB website, which is quite high.
VIP Mortgage Pros and Cons
The Good
You can apply for a home loan directly from their website without human assistance
They offer a digital mortgage loan process
Tons of different loan programs to choose from
Excellent customer reviews
A+ BBB rating, accredited since 2008
Lots of free mortgage calculators on site
The Maybe Not Good
Not licensed in all states
Do not disclose mortgage rates or lender fees on their website
Ever wonder what share of borrowers are taking out a 15-year mortgage as opposed to a standard 30-year fixed? Or an ARM instead? Well, I was, and so I went looking for the data.
Fortunately, I was able to track down some of the details thanks to the Urban Institute, which provided me with some great statistics since the year 2000.
As you might expect, the 30-year fixed is the king of mortgage originations, though its dominance has been tested over the years. And it does depend if we’re talking about all originations, or just purchases.
Mortgage product type choice definitely varies if we’re talking about a refinance as opposed to a home purchase since borrower needs change over time.
Put simply, it’s more common for a borrower to choose the 15-year fixed when refinancing a mortgage, and a lot less likely to use one to buy a home.
Why is this? Well, generally borrowers will go with a 30-year term because it increases affordability, meaning they can buy more house at the outset.
Later, once they’ve built some equity (hopefully), they can refinance into a shorter-term fixed loan, such as the 15-year fixed, to save on interest and also ensure their loan term isn’t extended from the original maturity date.
Nearly 90% of Purchase Mortgages Were 30-Year Fixed Mortgages
The 30-year fixed is easily the most popular type of home loan available
It has been for decades and probably will be for the foreseeable future
Largely because it’s the cheapest and most pitched mortgage product
Ultimately ARMs are too risky for most homeowners and the 15-year fixed is too expensive
I spoke to the dominance of the 30-year fixed, and perhaps that was an understatement. The 30-year fixed claimed nearly 90% (89.5%) of the purchase market in June 2017, per data from Corelogic, eMBS, HMDA, SIFMA and Urban Institute.
It was actually higher at many times over the past 12 months, hitting 92.6% in July 2016.
Back in January 2000, the oldest month where there is data, the 30-year fixed accounted for just 70.3% of purchase mortgages.
Its lowest share since then was in December 2004 and March 2005, when it was selected on just 48.3% of new purchases.
In those same months, the adjustable-rate mortgage share was a staggering 41%. The ARM share continued to be quite high leading up to the housing crisis that ensued a few years later.
But in June 2017, the ARM share was a measly 3% of new purchase loans, which tells you today’s home buyer has very little interest in anything other than the safety of the 30-year fixed.
And only 6.1% are interested in the 15-year fixed, or perhaps only a small handful can actually afford the higher monthly payments thanks to DTI restrictions.
30-Year Fixed Less Dominant on Refinances
While still easily number one, the 30-year fixed is less popular when we consider refinance loans
You can thank the 15-year fixed mortgage for that
It’s a common choice for those looking to avoid resetting the clock
Since you can avoid a new 30-year term and also snag a lower interest rate
When it comes to refinances, the 30-year fixed is still the product of choice for most borrowers, but less so.
Per the latest data, the 30-year fixed held a 76.7% share of ALL mortgages in June. Meanwhile, the 15-year fixed grabbed a larger 14.3% share, while ARMs still held a paltry 3.3% share.
If we go all the way back to January 2005, we see the low point for the 30-year fixed across all mortgage originations. At that time, only 44% of borrowers chose it.
During the same month, the ARM-share was 38.7%, while the 15-year fixed grabbed a 9.9% share.
Back in January 2000, the 30-year fixed share was at 59.5%, while the 15-year fixed held 10.9%, and ARMs 21.5%.
So the 30-year fixed is still very popular, though not quite as much as it was back in December 2008, when its market share across all mortgages peaked at 88.4%.
The 15-year fixed peaked at 26.8% in April 2003 across all origination types. And ARMs peaked at 42.1%.
Market Share of All Mortgage Originations Since 2000
I wrote a while back that more than half of consumers switched mortgage companies when obtaining a subsequent home loan.
The message was pretty clear – there’s not much loyalty in the mortgage business.
Ultimately, it’s hard to be loyal if there’s a better deal to be had elsewhere, or if someone else is offering to treat you better.
In an effort to combat that, and improve customer retention in the homes loans business, lenders are beginning to take things a lot more seriously.
Homebot Engages Past Customers with Real Data
For example, last year Guild Mortgage partnered with Homebot to deliver regular, customized home financing digests to its existing customers.
Their automated marketing platform allows loan officers to present past customers with relevant data, economic insights, and other market intelligence.
Most importantly, it helps them stay connected with homeowners long after the mortgage has funded.
As part of that agreement, Guild Mortgage’s 1,100+ loan officers have access to Homebot’s “Lender Base” software to serve its ongoing customer retention initiative.
Many other mortgage lenders have also partnered up, including Planet Home Lending, Citywide Home Loans, and Cherry Creek Mortgage.
HouseCanary’s ComeHome Wants Your Customers to Come Back
In late 2019, HouseCanary launched ComeHome, a proprietary platform used to attract, retain and even convert customers.
It creates an ongoing relationship with the homeowner that focuses on what’s probably their largest asset.
The ComeHome solution allows lenders to inform homeowners of “opportunities,” such as the ability to refinance, or tap home equity via a line of credit (HELOC).
Most importantly, it makes it easier for mortgage lenders and their originators to engage their customers more frequently using technology as opposed to cold calls and direct mail.
And it’s not just ballpark estimates or generic copy, but rather real data backed by HouseCanary’s automated valuation model.
For example, customers can be informed that certain home improvements may increase their home value by X, using cash from known available equity in the property.
Customers also get a direct path to the loan officer when they’re ready to take action, another important consideration.
Ultimately, the software is in place to ensure you are the homeowner’s first choice for refinancing a mortgage, taking out a home equity loan, or even financing a next home purchase.
Because sometimes simply being first is good enough. The path of least resistance is usually the path taken.
Clearly that’s better than sending your client a notepad with your name on it, or a postcard in the mail with a joke on it.
Quicken Loans’ Cyclops Sees You
Then we have “Cyclops,” a mortgage servicing customer relationship management (CRM) software built by none other than Quicken Loans, the nation’s largest retail home loan lender.
The company developed the Cyclops software in 2016 at its Detroit headquarters, and recently sold the source code to Black Knight.
Like the aforementioned solutions, it provides “highly personalized information about loans, homes and neighborhoods” to existing customers.
For example, a loan originator can use the property’s current value to present refinance and home equity opportunities to borrowers.
It provides an omni-channel customer experience where the borrower can interact with the lender or loan servicer however and whenever they please, which may also increase customer retention.
But Still…Shop Around and Be Prudent
While all this new technology sounds awesome, and is awesome compared to a flyer that winds up in your recycle bin, a few words of caution.
First, don’t take these cool data visualizations as an invitation to refinance your mortgage every six months.
While there’s a good chance you’ve got some equity in your home, it doesn’t necessarily need to be tapped. There are other ways to pay for home renovations.
It may also not be in your best interest to fiddle with your mortgage, even if presented with a really compelling case using artificial intelligence.
Additionally, just because a lender contacts you first doesn’t mean you should use them, or feel any obligation to do so.
While they might have put the idea in your head, still do your due diligence and take the time to shop around with other lenders to see what they have to offer.
It’s pretty shocking that just 2% of consumers choose a mortgage lender for the best interest rate. And that’s exactly why these keeping-in-touch products will work.
Today we’ll take a hard look at San Diego, CA-based mortgage broker “Grander Home Loans,” which has some of the best customer reviews I’ve come across.
On all the major ratings websites, they have perfect 5-star reviews, which is a huge testament to their goal of putting the customer first.
At the same time, they say they offer the best combination of mortgage rate, monthly payment, and overall savings.
So it appears you can get the best of both worlds, responsiveness and a competitively-priced mortgage, without sacrificing a thing.
What’s more, they can shop your home loan on your behalf with their many wholesale lender partners so you don’t have to. Read on to learn more.
Grander Home Loans Fast Facts
Mortgage broker that offers home purchase loans and refinances
Founded in 2014, headquartered in San Diego, CA
Currently licensed in nine states nationwide
One of only seven LendingTree Certified Lenders nationwide
Grander Home Loans, Inc. is a mortgage brokerage that offers home purchase loans and mortgage refinances.
This means they connect home buyers and existing homeowners with their wholesale lender partners.
The company has been around since 2014 and is headquartered in San Diego, California in the Mission Valley area.
Their claim to fame, other than having perfect customer reviews, is the fact that they’re one of just seven LendingTree Certified Lenders.
Such lenders have proven that they consistently provide customer satisfaction that is absolutely top notch.
At the moment, they’re licensed in nine states, including Alaska, California, Colorado, Florida, Hawaii, Idaho, Montana, Oregon, and Washington.
It’s unclear if they plan to expand, or simply focus on the states they already do business in.
Aside from their San Diego headquarters, they have an office in Lanai City, Hawaii, which is located on the island of Lanai.
How to Apply with Grander Home Loans
Because they’re a mortgage broker, the loan application process may vary depending on which wholesale partner you wind up with.
But they’ll likely start by providing you with a mortgage rate quote and ask you to electronically complete a loan application and eSign disclosures.
They have a secure upload form on their website that allows you to submit supporting documentation, such as tax returns, bank statements, and so on.
Once submitted, you’ll be able to use this same portal to satisfy any prior-to-doc conditions that are required to close your loan.
They say they provide “regular loan updates and progress reports” throughout the loan process to keep you informed and in the know.
And because customer satisfaction is their number one goal, you should be partnered with a very responsive lending team.
To that end, Grander says it promptly responds to emails and returns phone calls, a common gripe in the mortgage space.
This is especially useful for first-time home buyers and those who have never refinanced, where a little hand-holding goes a long way.
Available Loan Programs at Grander Home Loans
Home purchase loans
Refinance loans: rate and term, cash out, streamline
Conforming loans backed by Fannie Mae and Freddie Mac
High balance loans (those that exceed conforming limit)
Jumbo home loans up to $5 million loan amounts
FHA loans
VA loans
Fixed-rate mortgages: loan terms between 8 and 30 years
Adjustable-rate mortgages: 5/1, 7/1, and 10/1 ARM
When it comes to product choice, Grander Home Loans has lots of loan programs to choose from, including the ability to choose a loan term from 8 to 30 years.
This could allow you to avoid resetting the clock when refinancing, a great way to stay on track if paying your mortgage in full is a priority.
They also offer core first-time home buyer programs, such as Fannie Mae and Freddie Mac’s 97% LTV offerings, along with the FHA’s 3.5% down product.
Those with not-so-great credit can take advantage of an FHA loan with credit score minimums of just 550.
If you’re active duty or a veteran, you can take advantage of a VA loan that requires no money down.
Those purchasing a home or refinancing a mortgage in a more expensive region of the country shouldn’t have any issues thanks to their high balance and jumbo loans, with loan amounts as high as $5 million.
For those sitting on a ton of home equity, they allow cash out up to $1 million.
They lend on all common property types, including single-family homes, vacation homes, condos/townhomes, and 2-4 unit investment properties.
The only major loan program they seem to be missing is USDA loans, which are reserved for home buyers and homeowners in rural areas.
Grander Home Loans Rates
The only area where I wish I knew more is their pricing and fees. They say right on their homepage that they “offer the best combination of rate, payment, term, and overall savings.”
But they don’t post daily mortgage rates on their website, or a list of lender fees that must be paid.
Despite this, my assumption is that they are very competitively priced because mortgage brokers often are, and they have stellar customer reviews.
I doubt they’d have incredible reviews if their pricing was high, or even just so-so.
They also have the advantage of shopping your loan with multiple wholesale lenders at once, instead of simply looking within.
Still, take the time to haggle and negotiate with them and gather mortgage rate quotes from other banks, lenders, and brokers.
Remember, you should compare mortgage brokers too, even if they can shop for you with their partners.
Also be sure to take into account any lender fees, such as a loan origination fee, or required mortgage points for a given rate.
The mortgage APR should give you the complete picture, which you can then compare with other companies during your home loan search.
Grander Home Loans Reviews
Over at LendingTree, where they are just one of seven Certified Lenders, they have a perfect 5-star rating out of a possible 5 from about 300 customer reviews.
Additionally, 100% of former customers recommend them to others, which is a great sign if you want a solid mortgage experience.
With regard to the Certified Lender status, one of the requisites is “providing exemplary service to LendingTree consumers,” while having at least half their staff certified with the company.
Grander Home Loans also achieved “President’s Club” status back in 2020, which is “presented to an elite group of loan officers” based on a commitment to customer excellence and LendingTree best practices.
They’ve also got a perfect 5.0-rating from about 250 Google reviews, which is quite impressive given the volume.
Beyond that, they also have a perfect 5-star ratings on Customer Lobby, Yelp, and Zillow.
On aggregate, they seem to have achieved perfection from a customer satisfaction standpoint.
To sum things up, Grander Home Loans is one of the highest-rated mortgage companies I’ve come across, so if you value customer service, they could be a great choice.
They also operate as a mortgage broker, which means they should offer a hands-on approach and a wide array of loan programs and mortgage rates to choose from.
This could serve both existing homeowners looking to refinance and prospective home buyers, the latter of which may need more guidance than a big bank can offer.
Grander Home Loans Pros and Cons
The Good Stuff
Say they offer competitive pricing
Can shop your loan with multiple lenders because they’re a broker
Lots of loan programs to choose from
Perfect 5-star customer reviews across all ratings websites
BBB accredited business since 2015
LendingTree certified lender (one of just nine nationwide)
Refinancing a mortgage can be a great financial move for homeowners to potentially lower monthly mortgage payments, tap home equity, or build equity more quickly by shortening the term of the loan.
Refinancing can save you money — but it can cost you money too. Before you start the refinancing process, you should know how it works, the benefits and drawbacks, and the steps you’ll need to take.
What Is Mortgage Refinancing and Why You Might Want to Refinance?
Refinancing a home mortgage is basically replacing your existing mortgage with a new one, typically with a different principal and interest rate.
There are many reasons why borrowers choose to refinance a mortgage, including:
To take advantage of lower market interest rates
To shorten the term of their loan
To withdraw a portion of their equity
To lower their monthly payments with a longer repayment term
To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
To remove or add another person to the mortgage
Choosing the Right Type of Mortgage Refinances
There are three main types of mortgage refinances: rate-and-term, cash-out, and cash-in.
Rate-and-term refinance: This type of refinancing allows the borrower to change the interest rate, the term of the loan, or both without advancing any new money.
Cash-out refinance: A cash-out refinance takes advantage of the built-up equity in the home and gives the borrower cash in exchange for a larger mortgage.
Cash-in refinance: A cash-in refinance allows homeowners to pay a large sum towards their principal balance during the refinance process.
4 Benefits of Refinancing a Mortgage
Your decision to refinance your home mortgage ultimately depends on your goal. Do you want to lower your monthly payments? Are you hoping to shorten the length of your loan?
Here are some common reasons that people choose to refinance:
Changing the length of your loan. By refinancing from a 30-year mortgage into a 15-year mortgage, you could pay it off in half the time. This also results in paying less interest; however, your monthly payment may go up.
Switching to a different loan type. Some homeowners choose to refinance their mortgage to change their loan types. For example, refinancing from an adjustable-rate mortgage to a fixed-rate mortgage. The interest rate for an adjustable-rate mortgage can go up and down over time but the interest rate for a fixed-rate mortgage doesn’t change.
Tapping into your home equity. Want to do some home improvements, pay off debt, or even take a trip? You can do a cash-out refinance to borrow more than you owe on your current mortgage.
Getting a lower interest rate. Interest rates fluctuate for a variety of reasons. Refinancing could make financial sense if you can get a lower interest rate than when you originally took out your mortgage. If you can secure a lower interest rate, you could potentially save money and pay off your mortgage faster.
Calculate how refinancing might affect your monthly payments with Total Mortgage’s Refinance Calculator and see how much you can save.
How to Refinance a Mortgage: 4 Key Steps
Refinancing a mortgage is very similar to purchasing a home; however, it’s a little less complicated. But how exactly does refinancing your home work? Here is a simplified step-by-step guide:
Understand your reasons for refinancing. Before you refinance, you need a clear goal. What do you want out of your refinance and what type of loan will help you achieve that goal?
Apply for a refinance. Once you’ve selected your lender, you’re ready to complete your refinance application, lock your interest rate, and submit any necessary documents. Keep inmind that you don’t have to refinance with your current lender. Exploring other landers’ options could increase your chances of finding a better interest rate with more favorable loan terms.
Appraisal and underwriting. The underwriter will review the application and documents and offer conditional and/or final approval of the loan. The lender will also order a home appraisal to verify the current home value.
Close on the loan. The home closing is when you and your lender will go over the loan documents and finalize all details. You’ll need to sign documents and pay closing costs listed in the Loan Estimate and the Closing Disclosure.
The time it takes to refinance a mortgage depends on several factors, such as credit checks, appraisals, and the lender. Refinancing a mortgage can take anywhere from 15 days to 45 days or longer, with an average of 30 days to close.
Costs of Refinancing a Mortgage
Refinancing isn’t free — but depending on your circumstances, it can be worth it. Closing costs typically include origination fees, home appraisal, and recording. Depending on where you live and your lender, there could also be an attorney fee and title search, and insurance.
Closing costs are generally a percentage of your loan amount —about 2% to 5% — though these are just estimates and costs may vary depending on the state and county where you live as well as your lender.
Not every closing will cost you money at the closing table. You could also have a no-closing cost refinance.
This is a refinance where instead of paying upfront, closing costs are either rolled into the new loan or the lender may raise your interest rate. While this does mean that you need to come up with less money at closing, you could end up paying more over the long run.
Explore Total Mortgage’s Refinancing Options
Unsure if you should refinance? Refinancing a mortgage could potentially lower your monthly payments with more favorable terms. Another option is to use a mortgage refinance to tap your home’s valuable equity and use the cash as you please.
If you’re looking to refinance a mortgage, be sure to check out Total Mortgage’s list of branches across the US and find the one nearest to you. You can also apply online and get a free rate quote.
Imagine a situation where you could transform your mortgage into a more favorable and empowering financial tool. Picture the possibilities of accessing the equity in your property or securing lower interest rates. Welcome to the world of mortgage refinancing. Refinancing your mortgage is like hitting the reset button on your home loan, allowing you to replace your current mortgage with one that better aligns with your financial goals. The general rule of thumb is that you’ll pay between 2% and 6% of the refinance value. Here’s how it breaks down.
For help figuring out how to refinance your mortgage in a way that works for you, consider working with a financial advisor.
Mortgage Refinances Basics
A mortgage refinance refers to the process of replacing an existing mortgage with a new one, typically to take advantage of more favorable terms or to access equity in a property. Refinancing means receiving a new loan to pay off your current loan and obtaining a lower interest rate, longer loan duration, or a different type of mortgage. For instance, you might refinance your fixed-rate mortgage to a 5/1 adjustable-rate mortgage (ARM) for a lower interest rate.
Remember, although mortgage refinancing can provide a more favorable loan, it involves closing costs and fees. As a result, it’s essential to calculate whether the potential savings or benefits outweigh the expenses over the long term.
Average Cost to Refinance a Mortgage
Refinancing a mortgage means paying for the loan servicing required for your original mortgage. While the average refinance costs 2% to 6% of your loan amount, costs vary depending on your circumstances. In addition, interest rates have risen in the last two years, making borrowing more expensive.
Here’s a breakdown of refinancing costs:
Application fee: $0-$500
Attorney fees: $500-$1,000
Credit report fee: $10-$100
Discount points: 0%-3%
Document preparation fee: $50-$600
Flood certification: $15-$25
Home appraisal: $300-$700
Home inspection: $300-$500
Origination fees: 0.5%-2%
Recording fees: $25-$250
Reconveyance fee: $50-$65
Tax service: Varies
Title insurance and search: $400-$900
Factors Affecting Refinance Costs
Refinancing your mortgage can save you a significant amount of money. However, it’s critical to note that, similar to acquiring a new home loan, a refinance entails closing costs that can impact your immediate and long-term financial situation. Compared to closing on a comparable purchase loan, the closing costs for a refinance are generally lower. The precise amount you’ll be required to pay depends on various factors, such as:
Your Loan Size
As mentioned above, lenders base mortgage insurance and other costs on your total loan amount. Therefore, the larger your loan, the higher the refinance cost.
Your Lender
Each lender has its own fee structure. For example, some lenders may waive your credit report or application fee. As a result, it’s wise to shop around for lenders and ask for a summary of fees before committing to a specific lender. This way, you can compare the offers available.
Your Location
Costs of home inspections, recording fees, taxes and more depend on your location. Therefore, where you live can change your refinance costs by hundreds or thousands of dollars.
Your Credit Score
Your credit score and history demonstrate your consistency and reliability as a borrower. As a result, your lender charges lower interest rates to customers with higher credit scores because they present less risk. On the other hand, a low credit score means you’ll pay more interest, increasing your refinancing costs.
Your Home Equity
Similarly, home equity can also impact the interest rates available when refinancing. Generally, lenders offer better rates to borrowers with higher levels of equity. With more equity in your home, you represent less risk to the lender, which can result in more favorable interest rate options.
In addition, the loan-to-value ratio (LTV) is a crucial factor lenders consider when evaluating a refinance application. You can calculate it by dividing the loan amount by the property’s appraised value. Lenders typically have maximum LTV ratios they are willing to accept. For example, if a lender has a maximum LTV of 80%, they will only refinance up to 80% of the home’s appraised value. So, if your original mortgage required private mortgage insurance (PMI) because you had a low down payment or a higher LTV ratio, refinancing can help you eliminate PMI. Building equity to achieve an LTV ratio of 80% or less can eliminate PMI, reducing your monthly payment.
Your Loan Duration
Refinancing means receiving new terms for your loan. For example, you might extend your loan by five years or more through a refinance. Although doing so can lower your monthly payment, it usually increases the amount of interest you pay over time. On the other hand, shortening your loan duration means paying it off more quickly, reducing paid interest.
Your Type of Mortgage (Fixed-Rate or Adjustable-Rate)
With a fixed-rate mortgage, the interest rate remains constant throughout the entire loan term. The rate you agree upon at the beginning of the loan remains unchanged over the life of the mortgage, whether over 15, 20, or 30 years. This stability allows you to have predictable monthly mortgage payments, making budgeting easier. The downside is your interest rate is permanent, even if market trends in the future produce lower interest rates.
In contrast to fixed-rate mortgages, adjustable-rate mortgages (ARMs) have an interest rate that can change periodically. Typically, an ARM has an initial fixed-rate period, such as 5, 7, or 10 years, during which the interest rate remains stable. This rate is usually lower than fixed-rate mortgages. Then, after the initial period, the interest rate can adjust periodically based on an index, such as the U.S. Treasury rate. Therefore, the interest rate can fluctuate over time, potentially resulting in higher or lower monthly payments. If interest rates rise, your payments may increase, but if rates fall, your payments could decrease.
Your Specific Mortgage Program
In addition, you’ll pay different amounts for mortgage insurance depending on the loan type. For instance, mortgage insurance for conventional loans costs 0.15% to 1.95% of the loan amount every year. For FHA loans, you’ll pay a 1.75% premium upon closing and 0.15% to 0.75% of the loan amount every year. VA loans have a funding fee at closing of 0.5% to 3.6%. Lastly, USDA loans have a 1% upfront fee and a 0.35% annual fee.
Your Type of Property
The type of property you own can impact the refinancing process. Lenders may consider different factors and have specific guidelines based on the property type. Here are a few ways the property type can affect a refinance:
Primary Residence: Refinancing a primary residence typically offers the most favorable terms and options. Lenders may provide lower interest rates and more flexible terms for primary residences because borrowers prioritize them over other real estate and assets.
Investment Property: Refinancing an investment property, such as a rental property or vacation home, often comes with slightly higher interest rates and stricter eligibility requirements. Lenders may impose stricter debt-to-income ratios, require larger down payments and assess the property’s rental income potential to determine the feasibility of the refinance.
Condominiums: Refinancing a condominium may have specific requirements. Lenders may assess the financial health of the condominium association, including factors such as the percentage of owner-occupied units, insurance coverage and reserve funds. Additionally, lenders may have stricter appraisal requirements for condos to ensure the property’s value and marketability.
Multi-Unit Properties: Refinancing a multi-unit property, such as a duplex, triplex, or apartment building, may involve different considerations. Lenders typically evaluate the property’s rental income potential, occupancy rates and the borrower’s experience as a landlord. The appraisal process may focus on the property’s income-generating capabilities.
Manufactured or Mobile Homes: Refinancing a manufactured or mobile home may have specific requirements and considerations. Lenders may have stricter criteria for these types of properties due to their unique characteristics. They may require specific certifications, consider the property’s foundation and location and have limitations on the loan-to-value ratio.
Typical Cost Breakdown
Here’s an example of how these numbers work. According to a recent report by Freddie Mac, the average rate refinance is about $273,500. So, here’s how the costs look at percentages of the loan balance on average using the dollar figures introduced earlier:
Application fee: 0%-0.18%
Attorney fees: 0.18%-0.36%
Credit report: 0.003%-0.03%
Discount points: 0%-3%
Document preparation fee: 0.018%-0.2%
Home appraisal: 0.11%-0.25%
Home inspection: 0.11%-0.18%
Origination fees: 0.5%-2%
Recording fees: 0.009%-0.09%
Reconveyance fee: 0.018%-0.023%
Title insurance and search: 0.14%-0.33%
Additional Considerations
Here are several other aspects of refinancing a mortgage to contemplate before taking action:
Interest Rates Variations
Interest is the foundation for how lenders make money on loans. As a result, it’s one of the primary expenses for refinanced mortgages. The rate is a percentage of your principal balance, and your monthly payment goes toward interest first, then the principal. As a result, a higher interest rate means you’re paying more for the cost of the loan and less on the loan itself, increasing the cost and requiring more time for repayment.
Choosing Between Fixed-Rate and Adjustable-Rate Mortgages
Remember, a fixed-rate mortgage offers an interest rate that doesn’t change throughout the loan. This feature offers predictability for monthly payments until you repay the loan. On the other hand, adjustable-rate mortgages (ARMs) have interest rates that shift according to market trends after the initial fixed period. The advantage of ARMs is that your initial rate is usually lower than fixed-rate mortgages, and the adjustable rate afterward could also remain lower, increasing your savings.
Potential Savings Over the Long Term
How long you plan to live in your home is another crucial factor regarding refinancing. The refinancing process entails paying closing costs, which can outweigh the savings the interest rate reduction provides. Therefore, it’s best to estimate how long you plan to stay in your home to determine if you can break even or save money through refinancing. One method is to calculate the break-even point by dividing the total cost of the refinance by your monthly savings.
For example, say you save $100 per month, and the closing costs amount to $5,000. In this case, it would take approximately 50 months (or over four years) before you experience savings on your refinance. If you intend to stay in your home for longer than that, refinancing is worthwhile.
Loan-To-Value Ratio (LTV)
The eligibility of your mortgage for refinancing is influenced by the current value of your home compared to the loan amount. During the refinancing process, an independent party appraises your home to determine its market value. The appraised value is critical since the LTV usually can’t exceed 80%. If your home’s value has declined since you purchased it, you might lack sufficient equity to refinance, or you may need to bring additional funds to cover the difference between the home’s value and the loan amount.
Income Stability and Debt-To-Income Ratio
Other debts besides your mortgage, such as car loans or credit card debt, can impact your ability to refinance or the interest rate you receive. Lenders evaluate your debt-to-income ratio when you apply for a refinance. To calculate this ratio, divide your monthly debt payments by your gross monthly income. Generally, a debt-to-income ratio below 43% is desirable for mortgage or refinance qualification.
In addition, your current income and employment status, will influence the refinancing application. Specifically, changes in your income or employment can affect your refinancing eligibility. For instance, you may qualify for a better rate or more favorable terms if your income recently increased.
Conversely, suppose your income has decreased or you recently changed jobs. In that case, the refinancing process may be more challenging, depending on the duration of your current job or the extent of the income reduction. If you’ve recently started a new job, giving your situation several months to stabilize before attempting to refinance can help you qualify for a loan.
Cash-Out Refinance
Freddie Mac’s most recent report shows that 41.9% of refinances in 2021 were cash-out refinances. A cash-out refinance means liquidating a portion of your equity, putting thousands of dollars in your pocket. Homeowners cash out their equity for numerous purposes, such as improving the home, paying off debt, or starting a business. As a result, this refinance enlarges your mortgage, and you get a lump sum in return.
Strategies to Minimize Refinance Costs
Because refinancing can be expensive, it’s recommended to reduce costs as much as possible. This way, excessive fees won’t ruin the benefits of the refinance. These strategies can help you do so:
Shopping Around for Lenders
The whole lending market is open to you when refinancing. Although refinancing with your current lender might be convenient, you could find better rates and terms by getting quotes from several lenders and comparing the offers. This way, you’ll get the best deal available and save money on fees and interest.
Negotiating Fees and Closing Costs
Negotiating fees and closing costs with the lender is also an option. Many fees have wiggle room on the price, so asking lenders about discounts and waivers can be fruitful. In addition, a preexisting relationship with a lender, such as having a bank account or loan beforehand, allows you to access special deals.
Utilizing Mortgage Points
Lastly, you can purchase mortgage points to reduce your interest rate. Typically, they cost 1% of the loan amount per point. As a result, you can cut your interest rate down by paying several thousand dollars up front, reducing interest payments over time. It’s crucial to calculate when you break even if you do so. For example, say you spend $1,500 to lower your interest rate by 1%, lowering your monthly payment by $50. In this scenario, it will take 30 months to break even.
Hidden Costs to Be Aware Of
In addition, some refinancing costs are less apparent when shopping lenders. Here’s what to keep an eye out for:
Loan duration and its impact on costs: Generally, the longer the repayment schedule, the more expensive the loan. Your loan duration affects how long the interest rate builds upon the principal. So, repaying the loan faster means fewer compounding periods, which equates to less interest accrual.
Tax implications: Both original and refinanced mortgages provide a tax deduction for paid interest. In addition, purchasing points for a refinance loan creates another tax deduction. Specifically, you’ll divide what you paid over the number of years for the loan. So, paying $1,000 for a mortgage point for a 10-year loan results in a $100 deduction every year.
Costs associated with mortgage insurance: Refinancing with a conventional loan can incur mortgage insurance costs if you have less than 20% equity in your home. Specifically, private mortgage insurance (PMI) charges a percentage of your loan amount. These charges can occur at closing and each month as part of your loan payment.
The Bottom Line
Mortgage refinancing can benefit homeowners by allowing them to take advantage of more favorable terms and access equity in their property. However, it’s vital to carefully consider the costs involved in the refinancing process and determine whether the potential savings or benefits outweigh these expenses in the long term. As a result, it’s necessary to understand how numerous factors, including the loan amount, origination fees and discount points, can impact the overall cost of refinancing and evaluate the potential savings. Other considerations include the option of a cash-out refinance, which allows homeowners to access their equity, and using strategies to minimize refinance costs.
Tips for Refinancing a Mortgage
It’s a good idea for homeowners to analyze their financial situation and goals before refinancing their mortgage. Fortunately, you can consult with a financial advisor to evaluate your circumstances and make informed decisions that align with your long-term plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The real estate market fluctuates daily, making it challenging to understand when refinancing is beneficial. You can get an interest rate estimation using SmartAsset’s rate comparison tool to see if the market conditions suit you.
Deciding between a home equity loan vs. refinance? Both options give homeowners the chance to access their home’s valuable equity with the flexibility to use that cash however they please.
Additionally, refinancing allows homeowners to lock in a lower interest rate or change the length of their loan term.
If you’re trying to figure out whether a refinance or a home equity loan is right for you, consider your needs as well as the advantages and risks of both loan options.
What Is a Home Equity Loan?
As a homeowner, you have several options for taking advantage of the built-up equity in your home — one of those being a home equity loan. A home equity loan is a type of loan that allows homeowners to borrow against the equity in their homes.
Lenders typically pay out a home equity loan in a lump sum payment. The biggest advantage of a home equity loan is its flexibility. The funds can be spent on anything from medical bills, home renovations, and even travel.
Since home equity loans are secured by your home, lenders may give a lower interest rate than they would for personal loans or credit cards. However, defaulting on your loan puts you at risk of foreclosure.
How Does a Home Equity Loan Work?
Lender requirements vary, but you generally need:
At least 15% to 20% equity in your home
Good credit
Low debt-to-income ratio
Steady source of income
Once you’re approved for a home equity loan, your lender will give you documents stating the amount you can borrow (up to 85% of the home’s value), the interest rate, and associated fees.
These fees vary from lender to lender, so it’s a good idea to shop around and compare.
After the funds are disbursed, you will need to repay the loan’s principal amount and fixed-rate interest in fixed monthly payments. Depending on the lender, repayment on your home equity loan can be as long as 30 years.
While a shorter term allows you to repay the loan faster, it means higher monthly payments compared to a 30-year term.
What Does It Mean to Refinance?
If you refinance a mortgage, you’re replacing your current loan with a new one, usually with a new principal amount and a different interest rate. There are several reasons why a homeowner would choose to refinance their mortgage, such as lowering their interest rate, shortening the term of the loan, or taking out equity in their home in the form of cash.
Here are two common types of refinancing:
Rate-and-term refinance: This is a type of mortgage refinance that allows homeowners to change the term and interest rate of their current mortgage by replacing it with a new loan. Homeowners generally choose this option if they are looking to lower their interest rate, reduce their monthly payments, change the loan type or change the term length.
Cash-out refinance: With a cash-out refinance, homeowners take out a new mortgage on their home, up to 80% of the value of your home, for more than what is owed. This difference is paid out at closing and can be used on almost anything. However, this new loan is larger and comes with its own terms.
How Does Refinancing Work?
Refinancing a mortgage is similar to the process you went through with your original mortgage. You must apply and qualify for the loan before approval. The lender will assess your financial situation and determine your interest rate based on your risk level.
It’s also important to keep an eye on closing costs, which can range from 2% to 5% of the loan amount.
Let’s say you’re looking to take out some equity in your home and decide to use a cash-out refinance. You purchased a $300,000 house many years ago and took out a mortgage for $200,000. Your current balance with your lender is $100,000.
If the property value remained the same, you would have at least $200,000 in equity.
You could potentially be approved for $225,000 and use $100,000 to pay the remaining principal. This leaves $125,000 in cash to use as you please.
Comparing Home Equity Loan vs. Refinance
If you’re comparing a home equity loan vs. a cash-out refinance, both options allow homeowners to leverage their home equity to borrow more money.
A cash-out refinance replaces an existing loan with a new loan, meaning you only have one loan and one payment to worry about. A home equity loan, also known as a second mortgage, is another loan that must be paid alongside your original mortgage.
Cash-out refinances are also considered first-lien loans, and typically come with lower interest rates. First-lien debt holders are repaid before all other debt holders in the event of a foreclosure or bankruptcy. A higher interest rate on a home equity loan may be offset by lower closing costs.
If you want to take out some equity but you’re stuck deciding between a home equity loan vs. refinance, a cash-out refinance is an excellent option if you can lock in a lower interest rate. A home equity loan may be worth considering if you want to take out a large portion of equity or if you can’t find a lower interest rate when refinancing.
Home Equity Loan vs. Refinance? Ask an Expert at Total Mortgage
When deciding between a home equity loan vs. refinance, both options give homeowners quick access to cash by leveraging their home’s equity. Yet, one option may make more sense than the other depending on your needs and financial situation.
Are you looking to refinance or take out a home equity loan? Consider Total Mortgage for a quick, personalized mortgage experience. We work with borrowers across the country.