Tag Archive for: refinancing

January 16, 2024
Laptop, living room and couple search website information for home investment, loan or real estate property discussion on sofa. Young people on couch with pc internet, planning future together

The real estate waiting game is no fun. But with today’s high-interest rate, some would-be buyers think it’s prudent to play if they want to secure the best homeownership deal. The problem with that is you miss out on homeownership opportunities today, including less competition and falling prices in many markets.

The thing is, once the high-interest rates of today’s market moderate, everyone who’s been sitting on the sidelines may very well flood into the market at once. Yes, that’s right: A lot of other potential homebuyers are taking the wait-and-see approach, just like you are. The likely outcome is that competition will return, and real estate prices may start heading north once again.

Thankfully, Preferred Rate has a solution to get you on the path to homeownership NOW while allowing you to take advantage of lower rates if they materialize in the near future. The Buy-Fi Program lets you buy a home now and then refinance later with reduced lender fees.  

Let’s dig into the details of this program.

The Advantages of Preferred Rate’s Buy-Fi Program 

Buy-Fi is a game-changing opportunity for potential homebuyers seeking confidence and flexibility in their purchasing decisions. It’s truly the best of both worlds.

Buy now with confidence

Preferred Rate’s Buy-Fi program lets potential homebuyers buy with confidence between November 1, 2023, and March 31, 2024, regardless of current high-interest rates, with the knowledge that they can refinance into a lower rate later for lower fees.

Flexible refinancing options

Participants in the Buy-Fi program can refinance their homes anytime before December 31, 2024. This allows them to capitalize on lower interest rates at any time before that date.

Reduced fees make it a no-brainer

Preferred Rate is committed to reducing the financial burden of refinancing by offering reduced closing costs. These include administrative, application, commitment, technology, processing, and underwriting fees. When you add all those up, that’s a lot of savings compared with another mortgage lender or financial institution!

How to Buy a Home Now, Refinance Later 

A few simple steps can help you get into a home now with the Buy-Fi program while taking advantage of lower interest rates that may be forthcoming. 

To secure your home purchase loan, you just have to do the following:

  • Start your homeownership journey by applying with Preferred Rate for the purchase of your new home.
  • Successfully close on your home loan, securing your foothold in the real estate market.
  • At that point, Preferred Rate will watch the interest rates for you. When they drop, we’ve got you covered!
  • You can refinance anytime before December 31, 2024, and we’ll reduce your lender fees.

The Buy-Fi program creates a stress-free homeownership experience without the hassle of waiting for higher interest rates to come down. The strategy to buy a home now and refinance later is a financially responsible way to invest in real estate. These reduced lender fees provide real-world benefits to you in the long run and allow you to start building equity sooner.

Plus, this flexible approach of refinancing when it’s right for you (up until December 31, 2024) allows you to dictate the timing while securing a more favorable interest rate. 

Some people think sitting on the sidelines puts them in the driver’s seat in this market. But really, doing your homework, getting creative, and pulling the trigger when the factors are right for you are what really put you in control of your financial future. 

Other Things to Consider

Here are a few other things to consider when considering this program.

The federal funds rate and its influence on real estate

Preferred Rate’s Buy-Fi program strategically aligns with market dynamics influenced by the federal funds rate. That’s the rate at which banks, credit unions, and other financial institutions lend one another money. This gives participants in the Buy-Fi program a competitive edge in the real estate market.

In other words, when these high-interest rates finally start moving down, we move to save you money!

A new way to save

An online savings account—not to mention a high-yield savings account—is great, but Preferred Rate’s Buy-Fi program positions itself as a modern alternative to the traditional savings account. 

With Buy-Fi, you save money on reduced closing costs on the refinance (via reduced mortgage lender fees). You also save on the lower interest rate after you refinance. And, of course, you can start building equity right away.

Get into the market while the competition is lower

Those high-interest rates do make the housing market more attractive in a few respects. They mean that competition is lower, meaning you’re less likely to get into a bidding war over the home of your dreams. Lower competition usually leads to lower prices as well. 

Waiting to Buy a Home Could Cost You 

Getting a mortgage from other financial institutions or a mortgage lender comes with fees, including closing costs. The extra money required can strain the homebuying process, and waiting for rates to drop may not necessarily mitigate all these costs. 

At the same time, putting the money that would go toward your home purchase into one of these high-yield savings accounts that compounds interest can be attractive. However, the opportunity cost of waiting for lower mortgage rates could lead to missed opportunities for homeownership, impacting your long-term financial goals.

That’s why Preferred Rate’s Buy-Fi program is here to help. By encouraging proactive decision-making, offering flexible refinancing options, and reducing closing costs, Preferred Rate hopes to pave the way for a smart and seamless homeownership experience. 

Don’t let the uncertainty of market conditions dictate your homeownership journey. Seize the opportunity with Buy-Fi, and start your journey today!

December 18, 2023
Boyfriend and girlfriend sitting at home with laptop

Just as we prioritize our physical well-being with annual checkups with our doctors, it’s important to take a moment each year to assess our financial health. One of the essential financial checkups is the annual mortgage review.

This proactive approach can have a major impact on your financial well-being and can save you big money in the long run. Whether you have a fixed-rate loan, adjustable-rate mortgage (ARM), VA loan, FHA loan, or any other type of home loan, this review can be a game-changer.

Assess Your Financial Situation

An annual mortgage review provides you with an opportunity to assess your current financial situation. If you’re planning on making any major financial decisions in the upcoming year, such as paying for college, remodeling your home, or buying an investment property, your mortgage loan could play a big role. 

Knowing where you stand with your mortgage can help you make informed choices about accessing funds for any additional ventures.

Leverage Home Equity

Home equity is a valuable asset that many homeowners underestimate. During your annual mortgage review, you’ll get a look at how much your home has appreciated, as well as the amount of equity in your home. This information is vital because it can be a resource to tap into for future financial endeavors.

Let’s say you want to remodel your home. You might be able to use a home equity line of credit (HELOC) or refinance your mortgage to access the funds you need. By using your home equity wisely, you can finance your projects at a lower interest rate than other forms of borrowing. This can save you money in the long term.

Plan for Future Investments

Your annual mortgage review is an excellent time to discuss your upcoming investments or major financial decisions with a professional. Whether it’s turning your primary residence into an investment property, expanding your real estate portfolio, or venturing into other investment opportunities, your home can play a big part in bankrolling these endeavors.

Your Preferred Rate Mortgage Advisor can help you explore how your current mortgage loan and the equity in your home can be used to facilitate any of these investments and potentially save you money in the process.

Manage Your Debt

We all face financial challenges now and again. Mounting credit card debt, medical bills, and other unexpected expenses have been known to derail even the best-intentioned people. Your mortgage review is the perfect time to discuss any speed bumps with a financial professional who can help you explore all your options and potential solutions.

One option to consider is consolidating your debt under your mortgage using your home equity. By rolling your high-interest debts into your mortgage, you can benefit from a lower interest rate and a single monthly payment. This can make managing your finances more efficient while saving you money in interest payments over the long term.

Another option might be to consolidate your debt using a home equity loan or personal line of credit. Your Preferred Rate Mortgage Advisor can connect you with the right financing for your specific scenario. 

Eliminate Private Mortgage Insurance

If your mortgage loan required you to pay for private mortgage insurance (PMI) when you initially purchased your home, an annual mortgage review can be the right time to assess whether you’re eligible to eliminate this additional cost from your mortgage payments.

Often, once you’ve built up 20% equity in your home, you can request to remove PMI. This typically has some requirements to be eligible but can reduce your monthly mortgage payment amount and save you money on your mortgage over the long term. Your advisor can guide you through the process and determine whether you qualify to remove PMI. It’s important to note that mortgage insurance for FHA loans is treated differently by the Federal Housing Authority, and cannot be removed.

Explore Loan Term Options

Your annual mortgage review is an opportunity to re-evaluate the terms of your mortgage loan. If you currently have a long-term loan, such as a 30-year fixed-rate loan, you might consider shortening your loan term. If you shorten your loan term to a 15-year fixed-rate mortgage, it can help you pay off your home loan faster and save tons on interest over the life of the loan.

An annual mortgage review can be even more important if you have an adjustable-rate mortgage (ARM). That’s because the review is the ideal time to assess your current rate and the potential risk of rate fluctuations. You can also talk about refinancing into a fixed-rate loan if you’re looking to obtain a stable interest rate, ensuring that your monthly payment remains consistent and predictable.

Explore Payment Options

Did you know that if you make one extra principal and interest payment per year, you could shave years off your mortgage?

This is information you’ll learn in your annual mortgage review. Most mortgages offer flexible payment options, and if your financial situation allows for it, you might be able to increase your payment amount or make additional payments to pay your mortgage off faster. 

Stay Informed About Interest Rates

Even if you have a fixed-rate mortgage, interest rates play a pivotal role in your mortgage and overall financial health. Your annual mortgage review is a way to stay informed about current interest rates and any trends in the mortgage market. 

By keeping an eye on interest rate movements, you’ll know whether it’s the right time to refinance or lock in a more favorable rate. If you’re looking to buy another home, second home, or investment property, this is a great time to talk about the right time to buy, the type of mortgage you should be looking at, and strategies around higher interest rates. 

Yearly Financial Checkup

An annual mortgage review is a prudent practice for current homeowners. It provides you with the opportunity to assess your financial situation, leverage your home equity, plan for future investments, manage debt, eliminate unnecessary costs, explore loan term options, stay informed about interest rates, and so much more. You didn’t think one little meeting could do so much, did you?

Owning a home isn’t a passive investment. So the annual mortgage review makes sure your investment stands the best chance of paying off for you. Pair that with an experienced Preferred Rate Mortgage Advisor, and you can make the most out of your home loan while potentially saving money in the process.

September 11, 2023
Happy family using laptop for online shopping. They are excited

High-interest credit card debt can be financially draining for anyone. Paying off such debt with today’s high-interest rates can require significant sacrifices, but there’s a potential solution, especially if you’re a homeowner.

Your home equity can serve as a lifeline when facing the burden of high-interest credit card debt. Through options like a cash-out refinance, home equity line of credit (HELOC), or home equity loan (HELOAN), you can eliminate your debt or consolidate multiple high-interest credit card accounts into a more manageable single payment, typically lower than your previous combined monthly payments to various creditors.

How It Works:

  1. Cash-Out Refinance: This involves replacing your existing mortgage with a new, larger one, with the difference between the new and old loan balances paid to you in cash. You can then use this money to pay off your high-interest credit card debt.
  2. HELOC: A HELOC allows you to establish a line of credit against your home, typically with a 10-year draw period during which you can withdraw funds up to your maximum credit limit. You then have 20 years to repay the principal and interest on the amount withdrawn, and during the draw period, you pay interest only on the money you take out.
  3. HELOAN (Home Equity Loan): This is a fixed-rate mortgage with a typical term of 15 years. Unlike HELOC, it offers a fixed home loan with a lump sum check at closing, enabling you to consolidate your debt.

However, it’s important to understand that utilizing these options will result in a new mortgage loan or, in the case of a second mortgage, a new interest rate.

Benefits of Using Home Equity to Pay off High-Interest Debt:

  1. Faster Debt Repayment: Lower interest rates mean reduced borrowing costs, allowing you to pay off your debt more quickly, saving thousands of dollars in interest payments over time.
  2. Improved Credit Score: Reducing your credit card debt load can lead to an improved credit score, offering better terms and opportunities for future loans and credit lines.
  3. Building Savings: Freed-up funds from a HELOC, home equity loan, or cash-out refinance can accelerate debt consolidation efforts, allowing you to divert previous monthly payments into savings, retirement, emergencies, or other financial goals.
  4. Financial Security: Debt consolidation provides a safety net, increases credit limits, and creates financial security, leading to better peace of mind.
  5. Streamlined Payment Process: Simplify your financial management by consolidating multiple payments into one with a more favorable fixed interest rate, potentially improving your credit score.
  6. Elimination of High Interest: While your new mortgage may have a different interest rate, it’s generally much lower than the high-interest rates on credit cards, potentially saving you substantial sums.

Considerations for Debt Consolidation Refinance:

  1. Higher Monthly Payments: Expect increased monthly mortgage payments due to new terms and a higher mortgage balance. However, the savings from consolidating high-interest debt can outweigh this cost.
  2. More Mortgage Interest: While you save on credit card interest, you may pay more interest on your mortgage over its life.
  3. Loss of Deductibility: Unlike mortgage interest, interest on other debts, such as credit card debt, is not tax-deductible.
  4. Long-Term Commitment: A cash-out refinance or HELOC commits you to a new loan and repayment structure for the next 20 to 30 years.
  5. Closing Costs: Using home equity involves closing costs, typically ranging from 2% to 6% of the loan amount.

Using home equity to pay off high-interest credit card debt can be a wise move for homeowners who can manage the new monthly payments and plan to stay in their homes. While it may involve higher monthly mortgage payments and additional costs, the long-term benefits can outweigh these drawbacks, especially if your credit card debt is overwhelming your financial stability. Consider discussing your situation with a Preferred Rate Mortgage Advisor for personalized guidance.

September 7, 2023
Couple managing debt


Consolidating your debt through a refinancing option can be a smart way to address multiple financial challenges at once. It offers the potential to secure a lower interest rate for your debts while simplifying your monthly payments into one manageable installment. Essentially, you merge your various debt obligations into your mortgage, benefiting from the significantly reduced mortgage interest rates. This results in a single monthly payment at a more favorable interest rate, which is your mortgage payment.

How It Operates

A debt consolidation refinance allows you to pay off high-interest debts such as credit card balances, medical bills, student loans, and any other outstanding loan balances. This is accomplished by borrowing a larger sum than what you owe on your home through a home equity-based refinance. The difference between the amount borrowed and your existing debt is then used to settle those debts.

To be eligible for this program, you typically need at least 20% equity in your home and must meet certain qualification criteria. Lenders assess factors such as your credit score, employment history, and debt-to-income ratio, similar to the process when purchasing real estate. Additionally, they usually require a home appraisal to confirm that your home’s value exceeds the amount you wish to borrow and that you’ll still have equity left after using the funds to pay off your debts.

Debt Payoff Options

  1. Cash-out Refinance: Ideal for homeowners with substantial loan balances and significant home equity. The new loan pays off your initial mortgage, with the remaining funds used to clear your debts either directly or by providing you with the cash to pay them off.
  2. Rate and Term Refinance: This option involves securing a new loan with a lower interest rate and potentially extending the repayment term, often starting over with a new 30-year mortgage. It’s effective at combating high interest rates that may have been affecting your ability to meet your mortgage payments.
  3. Home Equity Line of Credit (HELOC): HELOC allows you to tap into your home’s equity without altering your current mortgage’s rate and term. It’s a flexible option, suitable for situations where you’ve secured a favorable mortgage rate but still need access to your home equity for purposes like home improvements or debt consolidation.

Advantages of Refinancing

Refinancing your mortgage offers several significant advantages, including paying off high-interest debt more quickly, improving your credit score as your debt decreases, and redirecting the money saved from lower interest rates toward debt repayment. This approach also reopens your credit card lines, providing a financial safety net for emergencies. Additionally, the savings can be directed towards building a rainy-day fund, reducing reliance on credit cards. Consolidating your debts simplifies the repayment process, resulting in a single payment at a more advantageous interest rate compared to high-interest credit cards.

Considerations Before Refinancing

Before proceeding, it’s crucial to weigh certain factors. A debt consolidation refinance typically results in higher monthly mortgage payments, although the lower interest rate and simplified payment structure can outweigh the increase. It’s essential to ensure that the new monthly payment fits within your budget. Additionally, while this approach may lead to higher mortgage interest payments over the loan’s lifetime, you must compare this cost to the interest accrued on your high-interest credit cards. Also, keep in mind that mortgage interest tied to other outstanding debts is not tax-deductible.

Consider the length of time you plan to stay in your home; if it’s a short-term arrangement, you might have less equity when selling, which means less profit. The loan term should also align with your comfort level, as it’s typically a 30- or 15-year repayment period. Remember that cash-out refinances come with closing costs, usually ranging from 2% to 6% of the loan amount.

Utilizing your home equity can be a strategic approach, especially as U.S. homeowners witnessed an increase in equity in 2023. Given the rising credit card debt levels, which stood at $986 billion in the first quarter of 2023, homeowners facing mounting debts might find that tapping into their home equity through debt consolidation offers much-needed financial relief.

If you’re considering these options and want to explore them further with a Preferred Rate Mortgage Advisor in your area, you can click here.

September 5, 2023
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Having a significant amount of debt looming over you isn’t enjoyable at all. It’s even more disheartening when this burden is substantial enough to hinder your ability to pursue your desires and achieve long-held aspirations.

Imagine wanting to attend your best friend’s destination wedding in Bali, aiming to purchase your first home, or desiring to support your children’s college education. Achieving such goals becomes challenging when you’re saddled with hefty monthly credit card payments.

What’s worse, extricating yourself from a debt avalanche can seem like an insurmountable task, particularly when compounded interest is at play (which is often the case with credit card debt).

Thankfully, a plethora of approaches exist for paying off your debt. Not only does this relieve you of the burden of debt, but it also opens up a realm of possibilities, allowing you to make the most of your surplus funds and improved credit score.

Here are eight effective strategies to help you navigate and eliminate your debt.

Debt Strategy #1: Trim Your Financial Belt.

Begin by assessing your financial situation and meticulously outlining a budget. Detail all sources of income, including your regular salary, earnings from side gigs, bonuses, and more. Also, catalog your monthly expenditures, pinpointing those that are discretionary.

Identify areas where you can curtail spending and allocate the extra funds toward reducing the principal balance of your debt.

Debt Strategy #2: Embrace the Debt Avalanche Approach.

Before your debt becomes overwhelming, employ the debt avalanche method to systematically obliterate your bills. This method concentrates on eradicating your most costly debt first.

Here’s the game plan: Compile a list of all your debts, ranking them from the highest interest rate to the lowest. Maintain minimum payments on all debts while directing any additional funds toward the debt with the highest interest rate.

Once that high-interest debt is paid off, shift your focus to the debt with the second-highest interest rate. Apply the surplus payment you were making to that debt while continuing minimum payments on others.

Persist until you’re debt-free. This approach significantly reduces interest costs over time.

Debt Strategy #3: Implement the Debt Snowball Method.

For some, the debt snowball strategy resonates. This tactic involves settling your debt with the smallest balance initially and then proceeding to the next smallest principal balance.

Unlike other methods, the snowball approach doesn’t account for debt interest rates. Nevertheless, it delivers a swift psychological boost as you cross debts off your list one by one. The sense of accomplishment from conquering some of your obligations can serve as potent motivation to persevere. Eventually, you’ll tackle larger and larger debts until they’re all paid off.

While the snowball method doesn’t lead to substantial interest savings, it proves effective for those who prefer starting with the “easier” tasks, making it a suitable strategy for prompt debt settlement.

Debt Strategy #4: Refinance High-Interest Debt.

In certain cases, leveraging interest rates through the refinancing of high-interest loans into a single loan with a lower rate is advantageous.

Imagine holding multiple credit cards with elevated interest rates. You could consider applying for a personal loan with a reduced interest rate and utilizing the proceeds to settle all the high-interest cards.

If you opt for this route, be mindful of origination fees linked to obtaining a personal loan. Furthermore, invest time in exploring various options to secure the most favorable loan terms.

Debt Strategy #5: Master the Art of Balance Transfers.

Should you possess good credit and a manageable number of active credit accounts, transferring your debt to a new credit card featuring a low or 0% introductory rate might be strategic. Nonetheless, it’s vital to grasp the terms, including the duration, of the promotional rate.

Devise a plan to eliminate your debt before the standard interest rate on the new card takes effect.

Debt Strategy #6: Leverage Your Negotiation Skills.

Contrary to the belief that paying off debt or watching interest accumulate are your sole options, negotiating with your creditors is a viable alternative. Endeavor to secure a lower interest rate or a repayment plan that aligns better with your circumstances.

Be forthright with your creditors about the factors contributing to your debt and your strategy for overcoming it. Numerous creditors are open to adjusting terms, particularly when your sincere commitment to debt repayment is evident.

Debt Strategy #7: Harness Your Home Equity via Cash-Out Refinancing.

If you’re a homeowner, your substantial home equity can be an asset. A cash-out refinance offers one method to address significant debt.

This entails replacing your existing mortgage with a new, larger loan that surpasses your mortgage balance. The difference is disbursed as cash, which can be allocated to debt settlement.

By amalgamating high-interest debts into your mortgage payments, you can capitalize on the typically lower fixed mortgage interest rate compared to astronomical credit card rates.

Despite concerns about potentially undermining a super-low mortgage rate, it’s pivotal to analyze the “blended” or average rate of all your debts to determine if this approach suits your situation. Many homeowners have succeeded in clearing substantial debt while maintaining a new loan payment lower than the combined total of their current mortgage and minimum debt payments. Additionally, a mortgage loan provides a structured payoff plan and timeline.

This option holds the potential for substantial interest savings over the long term, and it might even offer tax advantages. It can also streamline payment management, as a single monthly payment is simpler to handle than multiple payments with diverse due dates. For those struggling to manage numerous payments, this strategy could potentially enhance their credit score.

Debt Strategy #8: Leverage Home Equity through a Home Equity Line of Credit (HELOC).

Home equity presents numerous opportunities. Some utilize it for home enhancements or to clear student loans. Others tap into it through a home equity line of credit (HELOC) to eliminate high-interest debt.

A HELOC functions as a revolving credit line secured by your home. You can access funds as needed, employing your home equity to settle debts. Generally, a HELOC carries a lower interest rate than credit cards, rendering it an astute debt repayment avenue.

Nevertheless, prudent usage of a HELOC is essential. Guard against accumulating additional debt by drawing on this credit line only when necessary.

Seeking Further Debt Repayment Options?

Whichever strategy you opt for, committing to responsible credit usage in the future is paramount. Construct a budget within your means and adhere to it to sidestep financial difficulties down the road.

Debt can be a formidable adversary but don’t allow it to dominate your life or curtail your prospects. Effective methods exist to wipe the slate clean, free up funds, and embark on a new financial chapter.

If you’re interested in additional debt repayment avenues, don’t hesitate to contact Preferred Rate. Our trusted Mortgage Advisors are eager to hear about your financial situation and provide tailored strategies that suit your needs.

October 27, 2021
blog blue home evening, mortgage blog, primary residence, preferred rate

These past two years, homeowners across the country have considered buying a second home or relocating for several reasons. It could be a lifestyle change, moving closer to extended family, deciding to shift careers, seeking a lower cost of living, or even taking the big leap toward their dream house.

One question always comes up with every mortgage application: Will your new home be your primary residence? You might be wondering, why does it matter?

When it comes to your mortgage, primary residence, principal residence, and owner-occupied residence have the same meaning. But when you buy a property, it isn’t automatically considered your primary residence. In brief, a principal residence is the main property where you live more than six months out of the year. Your residence can be a single-family home, townhouse, condo, mobile home, or even a boat.

The broad rule is simple: where do you live most of the year? But it isn’t always clear-cut. So then, let’s talk about how to declare a primary residence and why it’s important.

Related: How to Finance a Fixer-Upper with the FHA 203(k) Home Loan

Top Mortgage Benefits of a Primary Residence

When you apply for a mortgage, you’ll need to declare the property type of your new home: principal residence, a second home, or investment property. In general, mortgage rates are the lowest for homebuyers purchasing a primary residence.

A low mortgage rate can save thousands of dollars over the length of your loan. What’s more, there are a number of discounts, loan programs, low down-payment options, and other benefits. When you’re buying or refinancing a principal residence, you’ll have the best options available to you.

Primary Residence Advantages:

  • lower interest rate and mortgage rates
  • flexible loan terms
  • greater home loan options
  • mortgage interest is tax-deductible
  • property taxes are tax-deductible
  • lower capital gains taxes *

* As the homeowner of a principal residence, you might qualify for reduced capital gains taxes when you decide to sell your home. Capital gains tax is due when you sell assets for a profit, such as selling a home. For 2021, the IRS permits homeowners to bypass capitals gains tax on the first $250k (filing single) or up to $500k (married, filing jointly).

Related: How to Buy a Home With Friends or Family

How to Meet the Criteria for a Primary Residence

In short, your primary residence is where you live more than six months of the year. This rule seems pretty straightforward for homeowners who live and work in the same area or are raising a family and sending their kids to a local school.

But it’s not always that clear-cut. For example, what if you travel for work regularly and split your time between two locations? Does your family spend half the year in a winter location travel somewhere new during the warmer months? Some couples own multiple homes and don’t live in any particular home for more than six months out of the year.

When you declare your property as your principal residence, you’ll be asked to verify the following:

  • Tax Returns: What address will be listed on your federal tax returns?
  • Postal Mail: Is your primary residence listed with the U.S. Postal Service?
  • Personal ID: Which address will you use on your Driver’s License?
  • Voting: Where are you registered to vote?

The IRS, in particular, defines a primary residence as an address that is close to your bank, your place of work, where your family resides, or where you are officially part of an organization or local club. Find more info here on tax rules.

Summary

When you apply for a mortgage, most homebuyers want to get the best rate and the loan terms. In most cases, this means being able to declare the property as your primary residence. Primary residence, principal residence, and owner-occupied residence all mean the same thing.

So if you’re looking for a second home or investment property, be aware that it may not meet the criteria needed to qualify as a primary residence. The benefits of declaring a primary residence include getting a lower interest rate, better loan options, tax breaks, and a break on capital gains taxes when you sell your home. 

Next Steps

If you’re not sure whether or not your next property will qualify as your primary residence, we can help guide you through the process. Knowing your loan options is always a smart move, whether you’re considering a principal residence, investment property, or vacation home. Connect with a local mortgage advisor to discuss your goals and set yourself up for financial freedom. We’d love to help.

August 10, 2022
mortgage blog, get rid of PMI, preferred rate

There are four practical ways to get rid of PMI (private mortgage insurance), and each path has slightly different requirements. But they all have the same main benefit: to get rid of PMI payments for good. For most homeowners, getting rid of PMI results in a lower mortgage payment which is always good news. That extra cash can help with monthly expenses, add to your savings, or build wealth through investing.

First things first, to get rid of PMI, most homeowners will need to cross two thresholds: own your home for at least two years and have at least 80% equity in your home. Government-backed mortgages and private lenders have slightly different rules when it comes to mortgage insurance requirements though. Talking with a mortgage advisor can offer a clear-cut understanding of your best options based on your current mortgage and eligibility.

Private Mortgage Insurance

Private mortgage insurance (PMI) is designed to protect the lender, not the borrower. So, at first glance it can feel like an undue cost and a burden to new homeowners. After all, PMI increases your mortgage payment without paying down the principal. Homebuyers can typically expect to pay between $30-$70 per month for every $100k borrowed on a mortgage.

But PMI often benefits homebuyers by providing a fast path to homeownership, especially for first-time homebuyers. The fact is, PMI is a common requirement for most homeowners who purchase a home with less than 20% down.

Getting approved for a 3% down payment mortgage might require PMI, but a mortgage can also provide financial stability and a predictable monthly payment. As a new homeowner, you can stop renting and start building home equity right away.

TOP 4 WAYS TO GET RID OF PMI

 1. Pay down your mortgage until you hit 78% equity.

For conventional home loans which aren’t government-backed, PMI often falls off automatically once your loan-to-value ratio drops below 78%. This is a default path that measures your original home loan against your original home appraisal.

However, you can pay down your mortgage faster if you want to reach that threshold sooner. Just remember to designate your extra payments toward principal and not as a general payment (which could be applied to both principal and interest).

Worth noting, the loan-to-value ratio does not take rising home values into consideration. If the value of your home has risen well above the original purchase price, consider requesting a formal appraisal, which we blogged about here.

2. Make a formal request to cancel PMI.

If you don’t want to wait until your LTV ratio meets the 78% benchmark, you can make a formal request to get rid of PMI once you have at least 80% equity in your home.

To get rid of PMI without refinancing your mortgage, contact your mortgage lender directly and make a formal request. Again, the 80% equity is determined by your loan-to-value ratio, which measures your current mortgage balance against the original home appraisal when you purchased your home.

If the value of your home has increased substantially since your purchase date, it might be worth it to request a formal home appraisal.

RELATED: Know when to refinance an FHA loan to a Conventional loan

3. Get rid of PMI by refinancing your mortgage.

While mortgage rates are still low, refinancing your mortgage to get rid of PMI can be a smart move. Refinancing your mortgage will trigger a new home appraisal, which is beneficial if your home has increased in value since your purchase date. What’s more, refinancing allows you to bring updated credentials to the table, such as higher income or a better credit score.

If it’s been at least two years since your mortgage closed and you’re in a stronger position as a borrower, refinancing your mortgage could save you the most money. Just remember, you’ll face closing costs when you refinance a mortgage. Connect with a mortgage advisor to decide if it’s the best fit.

4. Initiate a request for a current home appraisal. 

If you haven’t paid down your mortgage, but your home has appreciated in value, requesting a home appraisal might be worth it. For this plan of action, you need to be a homeowner for at least 5 years with 80% equity or at least 2 years with 75% equity.

These guidelines are in place to protect lenders from market volatility. For example, homes that increase well above market value in a short period of time then drop in value later, increasing the risk that a borrower might default.

For a new appraisal, also remember that you’ll still need to qualify for your mortgage. All things being equal, an updated appraisal might help you cross the 80% home equity threshold sooner. But if you have changes in employment, income, credit rating, or other credentials, requesting an updated appraisal may end up costing you the fee without being able to get rid of PMI.

RELATED: 7 Ways to Increase the Value of Your Home

A Final Caveat to Get Rid of PMI

Many home loans that include PMI require a portion to be paid upfront at closing. Usually, homeowners want to get rid of PMI to lower their mortgage payments. But the cost of refinancing might overshadow the benefits of eliminating PMI and end up costing you more in the long run.

The best first step is to discuss your financial goals with a financial advisor and connect with a local mortgage expert. There are a number of home loan options and mortgage refinance programs that could save you more money on your mortgage. Getting rid of PMI is one of many considerations. 

Taking Action

Consider whether now is the right time to get rid of PMI for good. Refinancing your mortgage, paying down the balance, or getting your home newly appraised can help you get rid of PMI and lower your mortgage payment. We can determine your eligibility and help you decide which path will save you the most money. Connect with a local mortgage advisor to get started. We’d love to help.

October 5, 2021
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There are four practical ways to get rid of PMI (private mortgage insurance), and each path has slightly different requirements. But they all have the same main benefit: to get rid of PMI payments for good. For most homeowners, getting rid of PMI results in a lower mortgage payment which is always good news. That extra cash can help with monthly expenses, add to your savings, or build wealth through investing.

First things first, to get rid of PMI, most homeowners will need to cross two thresholds: own your home for at least two years and have at least 80% equity in your home. Government-backed mortgages and private lenders have slightly different rules when it comes to mortgage insurance requirements though. Talking with a mortgage advisor can offer a clear-cut understanding of your best options based on your current mortgage and eligibility.

When is Private Mortgage Insurance a Good Thing?

Private mortgage insurance (PMI) is designed to protect the lender, not the borrower. So, at first glance it can feel like an undue cost and a burden to new homeowners. After all, PMI increases your mortgage payment without going toward any principal. Homebuyers can typically expect to pay between $30-$70 per month for every $100k borrowed on a mortgage.

But PMI often benefits homebuyers by providing a faster path to homeownership, especially for first-time homebuyers. The fact is, PMI is a common requirement for most homeowners who purchase a home with less than 20% down.

Getting approved for a 3% down payment mortgage might require PMI, but a mortgage provides financial stability with a predictable monthly payment. As a new homeowner, you can stop renting and start building home equity right away.

BEST 4 WAYS TO GET RID OF PMI

 1. Pay down your mortgage until you hit 78% equity.

For conventional home loans which aren’t government-backed, PMI often falls off automatically once your loan-to-value ratio drops below 78%. This is a default path which measures your original home loan against your original home appraisal.

However, you can pay down your mortgage faster if you want to reach that threshold sooner. Just remember to designate your extra payments toward principal and not as a general payment (which could be applied to both principal and interest).

Worth noting, the loan-to-value ratio does not take rising home values into consideration. If the value of your home has risen well above the original purchase price, consider requesting a formal appraisal, which we blogged about here.

2. Make a formal request to cancel PMI.

If you don’t want to wait until your LTV ratio meets the 78% benchmark, you can make a formal request to get rid of PMI once you have at least 80% equity in your home.

To get rid of PMI without refinancing your mortgage, contact your mortgage lender directly and make a formal request. Again, the 80% equity is determined by your loan-to-value ratio, which measures your current mortgage balance against the original home appraisal when you purchased your home.

If the value of your home has increased substantially since your purchase date, it might be worth it to request a formal home appraisal.

RELATED: Know when to refinance an FHA loan to a Conventional loan

3. Get rid of PMI by refinancing your mortgage.

While mortgage rates are still low, refinancing your mortgage to get rid of PMI can be a smart move. Refinancing your mortgage will trigger a new home appraisal, which is beneficial if your home has increased in value since your purchase date. What’s more, refinancing allows you to bring updated credentials to the table, such as higher income or a better credit score.

If it’s been at least two years since your mortgage closed and you’re in a stronger position as a borrower, refinancing your mortgage could save you the most money. Just remember, you’ll face closing costs when you refinance a mortgage. Connect with a mortgage advisor to decide if it’s the best fit.

4. Initiate a request for a current home appraisal. 

If you haven’t paid down your mortgage, but your home has appreciated in value, requesting a home appraisal might be worth it. For this plan of action, you need to be a homeowner for at least 5 years with 80% equity or at least 2 years with 75% equity.

These guidelines are in place to protect lenders from market volatility. For example, homes that increase well above market value in a short period of time then drop in value later, increasing the risk that a borrower might default.

For a new appraisal, also remember that you’ll still need to qualify for your mortgage. All things being equal, an updated appraisal might help you cross the 80% home equity threshold sooner. But if you have changes in employment, income, credit rating, or other credentials, requesting an updated appraisal may end up costing you the fee without being able to get rid of PMI.

RELATED: 7 Ways to Increase the Value of Your Home

A Final Caveat to Get Rid of PMI

Many home loans that include PMI require a portion to be paid upfront at closing. Usually, homeowners want to get rid of PMI to lower their mortgage payments. But the cost of refinancing might overshadow the benefits of eliminating PMI and end up costing you more in the long run.

The best first step is to discuss your financial goals with a financial advisor and connect with a local mortgage expert. There are a number of home loan options and mortgage refinance programs that could save you more money on your mortgage. Getting rid of PMI is one of many considerations. 

Next Steps

Consider whether or not now is the right time to get rid of PMI for good. Refinancing your mortgage, paying down the balance, or getting your home appraised can help you get rid of PMI and lower your mortgage payment. We can determine your eligibility and help you decide which path will save you the most money. Connect with a local mortgage advisor to get started. We’d love to help.