Will I have to write a check at closing?
There may be some out of pocket funds required at closing depending upon a couple of factors. If you have an escrow account for taxes and insurance, it does not roll over to your new mortgage. This means we must collect for the new escrow account whatever amount should be in that account at this time of year.
You will receive a refund from your current lender, any funds they are holding in escrow for you — usually about 30 days after we close. There is also one month of interest collected at closing but you don’t make a mortgage payment the first of the next month.
Therefore, the funds collected should be offset by the escrow refund and saved mortgage payment. The funds required at closing can usually be added to your loan balance if you choose.
Can I roll in my second mortgage?
Often times it may seem like a good idea to refinance to combine a first and second mortgages. If you have enough equity to keep your combined loans under 80% of the appraised value of your home this may work.
There are some considerations however. If you’re existing 2nd mortgage was not used to originally to purchase the home, it will be considered a “cash out” refinance and the lenders will charge a slightly higher rate. Also, if you did use the loan to purchase the house and it was a home equity line that was refinanced or utilized after the purchase of the home, it may still be considered a “cash out” refinance.
The lenders will not charge a higher fee if your first mortgage remains under 75% of the new appraised value of the home.
Do I need to pay PMI?
You will only be required to pay PMI if your loan amount exceeds 80% of the appraised value of the home. If this is the case because your house has not appreciated enough to avoid it or your taking cash out that would put you over this threshold, then you can structure the loan as an 80% first mortgage and a second mortgage for the balance that you need to avoid the PMI monthly expense.
If you want to combine a first and existing 2nd mortgage that will take your new loan amount over 80% threshold, then you may want to increase your first mortgage to the new 80% figure and refinance the existing 2nd mortgage into one that is smaller but hopefully at a better rate.
What happens with my escrow account?
Your existing escrow account will be refunded to you by your current lender within 30 days by Federal Law. They are not obligated to credit this money back when you close on your new refinance loan and very few will do it. This is because they still can collect interest on the money for that additional 30 day period.
If you decide to escrow for taxes and insurance in your new loan, you will be required to fund this account and wait for the money in your existing account to be refunded 30 days later. Depending on the timing, this can be a sizable amount of money.
If you wish, this money can also be “rolled into” the new loan amount provided that you have enough equity.