How to refinance in Colorado

Reasons to refinance

• Lower your interest rate or your monthly payment
• Shorten the term and pay less interest in total
• Take cash out of your equity
• Remove mortgage insurance
• Take a former spouse off the loan after a divorce

The types of refinance

Rate-and-term

Changes the rate, the term or both. The loan balance stays about the same.

Cash-out

You borrow more than you owe and receive the difference. Lenders require you to leave some equity in the home.

FHA streamline

For homeowners who already have an FHA loan. Less paperwork than a full refinance.

VA streamline (IRRRL)

For homeowners who already have a VA loan and want a lower rate.

Work out the break-even point

A refinance has closing costs. Divide those costs by what you save each month, and you get the number of months it takes to come out ahead.

If closing costs are $4,500 and the new payment is $180 lower, the break-even point is 25 months. If you expect to keep the home longer than that, the refinance deserves a closer look. If you plan to sell sooner, it probably costs more than it saves.

Try your own numbers in the calculator on the refinance page.

Before you take cash out

A cash-out refinance turns equity into money you can use, and it also raises what you owe on your home. It usually comes with a slightly higher rate than a rate-and-term refinance, and the closing costs apply to the whole new loan.

It tends to work best for uses that hold their value, such as improving the home or paying off debt with a much higher rate. Ask Max to show the new payment next to your current one before you decide.

Watch the term as well as the payment

A lower payment can come from a lower rate or from stretching the loan over more years. If you are eight years into a 30-year loan and start a new 30-year loan, the payment drops, but you may pay more interest in total. Ask to see the total cost for each option, including a shorter term.

The steps

1. Check your current loan. Balance, rate, remaining term and whether you pay mortgage insurance.
2. Get quotes. Compare rate, fees and break-even point across lenders.
3. Apply and lock. You provide income and asset documents, as with a purchase.
4. Appraisal, if required. Some refinances do not need one.
5. Close. On a primary residence you generally have three business days after signing to cancel.

When it is better to wait

• You plan to move before the break-even point
• The rate difference is too small to cover the costs
• Your credit score has dropped since your current loan
• You are close to paying the loan off

Max will tell you if the numbers do not support it.