Due to the expensive real estate market, Hawaii is a popular state for refinancing. Even in the midst of the housing meltdown, Hawaii’s housing market stayed pricey. In 2012, the median home value was $423, 000. As the economy strengthens, Hawaii’s home prices are on the rise, Zillow expects the median home price in the state to reach $615,000 by 2018.
Homeowners can use the following information to understand their options and gain the lowest Hawaii refinance rates or perhaps collect on any equity earned.
Types of home loan refinancing
Homeowners can choose from several different refinancing plans to meet their needs. The best candidates for refinancing will be living in their homes for several more years, do not have a prepayment penalty on the existing home loan, and have not yet paid more than a quarter of the mortgage. Refinancing options in Hawaii include:
FHA loans
You don’t have to have a purchase FHA mortgage to refinancing with FHA, and an applicant can refinance up to 96.5 percent of the current home value. FHA loans tend to have flexible approval terms when looking at a borrower’s credit score or other variables like the loan to value ratio. The one downside is that FHA loans tend to be more expensive than conventional loans. FHA usually requires an upfront mortgage insurance premium that many conventional borrowers can avoid.
VA Loans are issued by qualified lenders, like USAA for instance, and guaranteed by the U.S. Department of Veterans Affairs (VA). The VA can guarantee up to $417,000 of the total loan and VA-approved lenders generally look for a borrower’s credit score of at least 620 to qualify.
Fixed rate mortgages
One of the two types of conventional refinance products or, a loan that is not insured or guaranteed by the federal government, is the fixed rate refinance option. With a fixed rate, the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust. Refinancing with a fixed rate loan often comes in terms of 10, 15, 20, or 30-year lengths.
Adjustable rate mortgages (ARMs)
ARM loans, the second type of conventional mortgage, feature lower rates and payments early in the loan’s terms. Purchase ARMs often allow borrowers to finance a more expensive home than they could with a fixed rate. The downside of ARMs is that payments and overall interest can rise over the life of the loan. This makes ARMs a strategic move for borrowers who don’t plan on living in one place for very long to buy a house.
Interest only loans
As the name suggests, with interest-only loans, the borrower only pays the interest on the mortgage for a fixed period of time. The term is usually between 5 and 7 years. After the term is over, homeowners have the option to refinance their homes, make a lump sum payment, or continue paying the principal of the loan. Just like with an ARM, mortgage rates can increase, making payments more difficult to afford.
A jumbo mortgage is a home loan that is larger than conforming loan limits. Typically a jumbo mortgage works best with someone who has a high property value and can afford a larger monthly mortgage obligation. Maximum jumbo loan amount varies between lenders.
Another option for refinancing in Hawaii is a no closing cost home loan. In this program, banks either lump closing costs into the loan balance or increase the interest rate to offset the fees. The closing costs do still exist, but borrowers are not required to pay them upfront.
Borrowers whose current mortgages are insured by the FHA and who meet other criteria may be eligible for an FHA streamline refinance. This process involves fewer documentation requirements.
Home prices are notoriously expensive in Hawaii, which makes it a popular state for refinancing (Photo/Wikipedia)
When should you refinance?
Homeowners choose to refinance under different circumstances. The best time for refinancing depends on both the real estate market and the borrower’s unique situation. A proper home loan refinancing can reduce monthly payments, so that extra cash can be applied to other debts or to savings. Here are a handful of circumstances:
- Before the interest rate on an ARM is scheduled to reset and the payment increases.
- After the equity in a home has increased and the homeowner wants to take cash out.
- When the best refinance mortgage rates are at least one percent lower than the rate on the existing mortgage.
- When the homeowner’s financial situation and credit history have improved enough to earn one of the lowest interest rates.
- After the loan balance has decreased enough that refinancing would shorten the repayment period or allow other debts to be consolidated into a single payment.
Borrowers must always ensure that their new payments are affordable.
How to land the best refinance rates in Hawaii
One of the most important components of a refinance is the interest rate. Just a 0.5 percent bump in the rate can mean the difference between an affordable payment and spending thousands of dollars extra over the life of the home loan.
To obtain the best Hawaii refinance rates, borrowers should maintain a good credit score (ideally over 760) and keep a debt-to-income ratio under 36 percent of gross income. Paying points (a percentage of the loan) upfront and applying for a loan lower than the home value can also decrease the refinance rate.
If you need assistance finding the best refinancing rate in Hawaii, consider working with a mortgage broker. Brokers have the experience and connections in the mortgage industry to help secure the best product for your financial situation.
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