Refinancing Your
Home in Hawaii
The Complete Guide to
REFINANCING YOUR HOME IN HAWAII
TABLEOF
CONTENTS
REFINANCING YOUR HOME IN HAWAII
1
Chapter 1: Is a Refinance Right for You? 4
Chapter 2 : Choosing the Right Refinance 10
Option
Chapter 3: How to Apply for a Refinance 17
REFINANCING YOUR HOME IN HAWAII
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INTHISGUIDEYOU’LLLEARN
• Should you refinance? The basics, benefits and costs.
• The difference between a rate-and-term refinance
and a cash-out refinance.
• The difference between fixed rate mortgages
and adjustable rate mortgages.
• The basics of Federal Housing Administration
and Department of Veterans Affairs programs.
• The step-by-step process of refinancing and the
documents you’ll need to apply.
REFINANCING YOUR HOME IN HAWAII
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Diamonds may be forever, but a mortgage loan can seem almost as
enduring. Thirty years—the most popular mortgage term—is a long
time. And, over the course of three decades, a lot can change in your
life and in the economy. As things change, you may start to wonder
whether the mortgage you took out when you first bought your
home is still right for you.
Fortunately, you’ve got options. Refinancing your mortgage allows
you to revise the original terms of the loan, updating them to make
them better suited for your current needs, and to take advantage
of today’s low interest rates. Refinancing can give you financial
flexibility, help you save money and even let you tackle a few
items on your home-improvement to-do list. This guide explains
everything you need to know about refinancing a home in Hawaii.
EVERYTHINGYOUNEEDTOKNOW
ABOUTREFINANCING
REFINANCING YOUR HOME IN HAWAII
Have Questions?
Our mortgage experts
are ready to help:
808-693-2222
Ready to Apply?
Get started online.
4
Is a Refinance Right for You?
CHAPTER 1
What Does It Mean to Refinance?
Refinancing a mortgage loan is the process of replacing an existing
mortgage with a new mortgage with new terms that meet a borrower’s
current needs. The new mortgage terms will depend on the borrower’s
financial circumstances and goals.
When you first bought your home, you took out a mortgage to help
finance the purchase, with a certain interest rate and length of time for
repayment. But it’s likely that through the years things changed, and
now you might want to revisit those terms. Perhaps your home’s value
has appreciated greatly and you want to get access to some
of the equity that’s built up to fund that renovation you’ve been
dreaming about.
Or maybe you want to take advantage of low interest rates. A refinance
could lower your monthly payments and save you a substantial amount
of money over the life of your loan, especially if your original
mortgage dates back to the early 2000s, when interest rates were
significantly higher.
At some point in your
homeownership journey, you
might ask yourself, “Should
I refinance my home?”
There are many factors to
consider. Here are the basics
of refinancing you’ll need to
know to make a decision.
REFINANCING YOUR HOME IN HAWAII
5
Switch to a more
advantageous term:
Let’s say you’re five years into a
30-year mortgage. Refinancing
allows you to retire that mortgage
and get a new shorter-term loan,
maybe 15 years instead. By doing
that, you’ll be mortgage-free 10
years sooner and may realize
substantial savings over the life of
your loan, because rates on 15-year
loans are typically less than those
on 30-year mortgages. Bear in
mind, however, that your monthly
payment would most likely go up
due to the compressed time frame.
If, on the other hand, you want
to lower your monthly payments,
you could pay off your existing
mortgage with another 30-year
loan, lengthening the overall term
and spreading the repayment
over that longer period.
The Benefits of Refinancing
In addition to taking advantage of a new lower interest rate, here
are some of the main reasons you might want to refinance.
Lock in a fixed rate:
If you’ve got an adjustable rate mortgage (ARM)
you likely know the benefits: It can be a great way
to enjoy interest rates that are typically lower in
the first few years than a comparable fixed-rate
mortgage. You also probably understand the
risk of having your monthly payments increase
when the index rate goes up. If interest rates
are currently low, it might be the perfect time to
refinance to a fixed-rate loan, so you won’t have
to worry about rising interest rates again.
REFINANCING YOUR HOME IN HAWAII
Pay for large projects like remodels:
If you’ve been eyeing that kitchen
renovation but don’t have cash on
hand to pay for it outright, refinancing
can help you unlock some of the
equity in your home. Essentially, you
refinance for more than the current
amount owed on your mortgage,
and use the equity that you have
built to improve your home and the
overall worth of the property.
Settle a divorce:
Divorcing couples must divide their
assets when they separate. When
one spouse wants to remain in the
home, the other spouse may be
entitled to a certain percentage of
the value of the home. Refinancing
can provide the cash for one
spouse to buy out the other.
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Consolidate debt:
With credit cards charging interest
rates upward of 20 percent,
refinancing your home in order to pay
off this kind of expensive debt can be
a smart move. Aer all, the interest
rate will likely be significantly less and
you can deduct interest payments
from your taxes. A note of caution,
however: Refinancing to pay off credit
cards makes sense only if you know
you’ve got your spending under
control and won’t be tempted to rack
up more credit card debt. If you’ve
still got the same shopping habits that
got you into debt in the first place,
taking out money from your home
could put you into an even bigger
financial hole later. Tread carefully.
REFINANCING YOUR HOME IN HAWAII
Title search and insurance fees: This pays for a title search company to verify that
there is no lien against the property. Title insurance will pay for your legal fees to
defend you against a challenge to your title and will compensate you for any equity
you might lose as a result.
Appraisal fee: Your lender will hire a third-party appraiser to give their opinion of
your home’s value. They’ll ensure that your property is sound and doesn’t have any
major problems that could affect the home’s value as collateral for your mortgage.
Think termite infestation or caved-in roof. This way, the lender won’t lend you more
money than the home is worth.
Loan origination fees: As the name suggests, this fee compensates your lender
for reviewing your application and processing your refinance. It will typically be
1 percent of the total loan amount.
An alternative way to refinance your mortgage is with a home equity line of credit,
or HELOC. This method may allow you to refinance with no application or appraisal
fees, and lower or no closing costs, depending on your line amount, lien position,
property type and property location. See page 13 for more information.
In general, you’ll want to budget 2 to 3 percent
of the refinanced amount for closing fees.
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The Costs of Refinancing
While refinancing has many benefits and can put more money in your pocket, it does
also require you to pay up front costs. You can expect many of the same costs and fees
you paid on your original mortgage to reappear when you refinance. In general, you’ll
want to budget 2 to 3 percent of the refinanced amount for closing fees. So, if you
still owe $350,000 on your mortgage, you might expect to pay between $7,000 and
$10,500 in closing costs to refinance that balance.
Here’s a breakdown of the most common fees you are likely to encounter:
REFINANCING YOUR HOME IN HAWAII
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Discount Points:
When refinancing, you can decide
whether or not to pay discount points,
which can lower your monthly mortgage
payment. Points are fees paid to your
lender up front in exchange for a
reduced interest rate over the term of
your mortgage. Each point is roughly
equivalent to 1 percent of the principal.
In other words, if you borrow $100,000,
one point would cost $1,000. The
percentage of rate discount per point
will vary from lender to lender.
Your lender may allow a no-closing-cost refinance. However, this kind of refinance
will typically come with a higher interest rate or a bigger monthly payment. If you
plan to stay in your home for the long-term, that will mean higher interest payments
over the life of the loan than if you pay closing costs upfront.
To give you a sense of your closing costs, your lender will provide you with a loan
estimate within three days of accepting your application. This estimate will break down
all the different costs of the refinance and explain how to compare refinance offers
from different lenders. Prior to closing, your lender will provide a closing disclosure
that contains the final terms, so you can compare with the initial loan estimate.
REFINANCING YOUR HOME IN HAWAII
Do the Numbers Add Up?
Refinancing is a big decision, and it comes with some definite costs.
To understand if it’s worth your while to pursue a refinance, you’ll need
to understand if (and how quickly) you’ll recoup the costs.
A common rule of thumb is that anything 2 percentage points or more
below your current rate warrants refinancing, but even a savings
of 1 percentage point could pay off, depending on your situation.
Ask yourself: How long will I be staying in this home?
In general, a refinance will save you money if you live in your home
longer than it will take you to recoup your closing costs. Let’s say
your closing costs are $7,000 and you’ll pay $300 less a month by
refinancing. If that’s the case, then it will take you just under two years
to break even. If you move before then, you will lose money on the
refinance.
To help you figure this all out, your loan officer will be able to walk
you through a cost/benefit analysis, taking into account all of the
details of your specific situation.
To understand if it’s worth your while
to pursue a refinance, figure out if
(and how quickly) you’ll recoup the costs.
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REFINANCING YOUR HOME IN HAWAII
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Like mortgages themselves, there are many variations on refinancing. While it’s
important to pay attention to the interest rate, there are other important factors to
consider. This is definitely a case where one size does not fit all. Again, which option
depends on your circumstances and what you’re hoping to accomplish. When you’re
looking into mortgages, make sure you consider these different types.
CHOOSINGTHE
Right Refinance Option
CHAPTER 2
REFINANCING YOUR HOME IN HAWAII
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Rate-and-Term Refinance vs. Cash-Out Refinance
The main reason to get a rate-and-term refinance is to save money. With this type of
refinancing, you can pay off the balance of your mortgage with a new one that has a lower
interest rate. In the process, you might also want to change the loan terms, which are the
number of years it will take to repay your loan. For example, you might want to replace
your 30-year mortgage with a 15-year mortgage that has a lower interest rate and help
you save money over the life of the loan.
A cash-out refinance, on the other hand, lets you get a new mortgage for more than
your current mortgage balance. Again, you pay off your existing mortgage with a new,
larger mortgage. For example, you might still owe $100,000 on your mortgage, but you
refinance for $200,000, using the built-up equity in your home as collateral. You can only
do this if your loan amount falls below the loan-to-value threshold set by your banker so
you will not be able to borrow more than your home is worth.
The main reason to get a
rate-and-term refinance
is to save money.
REFINANCING YOUR HOME IN HAWAII
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Fixed-Rate Mortgage vs.
Adjustable-Rate Mortgage
In addition to deciding how long you want to continue
paying a mortgage, you’ll also need to figure out whether
you want a fixed-rate or adjustable-rate mortgage (ARM).
A fixed-rate mortgage lets you lock in one rate that you
will pay for the full term. Adjustable-rate mortgages, on
the other hand, fluctuate with interest rates. Adjustable-
rate mortgages typically have a period where they charge
a fixed rate and then the remainder of the term it has a
floating rate. That concept is expressed as two numbers
such as 5/1 which means that the first five years of the
mortgage will be fixed and then the loan will reset every
year, or, to put it another way, 5/25, which means that the
loan will be fixed rate for five years followed by 25 years
of adjustable-rate.
At the end of the fixed-rate period, the interest rate on
an ARM will reset on a regular basis based on an index
plus a margin. While the interest rate of an index will
change, the margin will not. If your margin is 2 percent,
then your interest rate will always be the interest rate of
an index plus 2 percent. In most cases, there will be a cap
to the rate, as well, which sets the maximum interest rate
you would ever have to pay.
Which to choose? In general, a fixed rate mortgage
makes the most sense when rates are low, so you can
ensure that you can continue benefiting even after they
rise. It’s when interest rates are higher that you’ll want
to consider an ARM, so that, if interest rates drop in
the future, you’ll benefit from those lower rates without
having to refinance. Another good use of an ARM is if
you only intend to live in your home for a few more years
before selling it. You’ll get the low introductory fixed rate
without the risk of rising rates later.
In general,
a fixed rate
mortgage
makes the most
sense when
rates are low.
REFINANCING YOUR HOME IN HAWAII
Home Equity Line of Credit vs. Refinance
A home equity line of credit, also known as a HELOC, is another way to get financing
that is secured by the equity in your home. Unlike a traditional mortgage refinance, a
HELOC acts as a revolving line of credit.
There are two distinct usage periods with a HELOC, the draw period, when you can
make withdrawals and generally only have to make monthly payments on the interest
of the loan balance, and a repayment period, when withdrawals are no longer
allowed and you must pay back your loan amount, plus interest.
Because it’s a line of credit, rather than a lump sum loan, you only pay for the portion
you actually use. Interest doesn’t start to accrue until you draw on the line of credit.
It acts a bit like having a credit card that’s secured by your house.
Another key difference is that HELOC interest rates are adjustable and usually tied
to an index like the prime rate plus a margin. There also may be an annual fee for
having the line of credit.
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A HELOC acts somewhat
like a credit card except
that it is secured by your
house.
REFINANCING YOUR HOME IN HAWAII
Here’s how it works. Even though you’re
taking out a line of credit rather than
refinancing into another closed-end
mortgage, you can benefit from many
of the same features as a conventional
refinance would offer, including:
And if your current mortgage balance is $400,000
or less, you will likely not need to pay to have
your home appraised, as is normally required for a
traditional refinance.
With a line of credit, you can get the additional
benefit of all the features that come with this kind
of financing. For example, during the draw period
as you pay down the balance of your HELOC,
you’ll gain access to that cash to use for whatever
you’d like, at a lower interest rate than you’d likely
be able to get with a credit card or unsecured
personal loan.
If at some point during your draw period you’d
like to lock in a fixed interest rate, you’ll be able to
convert some portion—or all—of your balance into
a fixed-rate loan. This will protect you against any
future increases in the variable interest rate.
You should consult your tax advisor regarding the
deductibility of interest on a home equity loan.
Most people are familiar with HELOCs
as an alternative to cash-out refinancing,
giving you access to cash for home
renovations or other projects while leaving
your current mortgage unchanged. But
a HELOC can also be used to refinance
your existing mortgage, letting you take
advantage of lower interest rates while also
potentially skipping the closing costs and
appraisal fees of a traditional refinance.*
* Depends on line amount, lien position, property type and property location.
Interest rates that are competitive
with current mortgage rates.
Repayment terms that are more
convenient for your goals and
budget—anywhere from 3, 5 or 7
years up to 15, 20 or 30 years.
The ability to access cash by
applying and qualifying for a
HELOC larger than the remaining
balance on your mortgage.
If your current mortgage balance is $400,000
or less, you will likely not need to pay to have
your home appraised.
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REFINANCING YOUR HOME IN HAWAII
15
Federal Housing Administration Programs
Homeowners who have an FHA loan through the U.S. Federal Housing Administration
or a mortgage through the Department of Veterans Affairs have the option to
refinance, and each department offers its own unique programs.
FHA streamline refinance: With this option, similar to a normal rate-and-term refinance,
you can pay off your existing mortgage with one with a lower interest rate. It’s called a
streamline because it allows you to skip much of the usual paperwork; oen an appraisal
may not be necessary.
FHA cash-out refinance: This allows homeowners whose property value has appreciated
to take out a new mortgage for more than what they currently owe.
FHA simple refinancing: This is most similar to a conventional rate-and-term
refinance, and will require you to meet minimum income and credit qualifications.
FHA rehab loan: You can get one loan for both the purchase and renovation of a home.
REFINANCING YOUR HOME IN HAWAII
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Department of Veterans Affairs Programs
If you have served in the active military, naval or air service and were discharged or released
under conditions other than dishonorable, you may be eligible to refinance your mortgage
through the Veterans Administration. There are three available options:
VA Interest Rate Reduction Refinance Loan: Also called a VA streamline, this allows
qualified borrowers to refinance to a lower interest rate loan with less paperwork than
what was originally required for the mortgage.
VA Cash-Out Refinance: You can borrow more than your original mortgage,
provided you have enough equity in your home. This loan is fully documented,
meaning that you’ll need the same documents and proof of income that you would
need when buying a new home.
Conventional to VA Refinance: You can refinance a conventional mortgage to a
VA refinance. This is a good idea when you want to refinance for more than 90 percent
of your home’s value, which a conventional mortgage oen requires. VA refinancing
allows retired military members to refinance up to 100 percent of their home’s value.
REFINANCING YOUR HOME IN HAWAII
How to Apply for a Refinance
CHAPTER 3
17
Once you’ve decided whether or not to refinance and what type of loan
is best for you, you can embark on the application process.
1. Watch the rates
2. Choose your lender
3. Fill out an application
4. Application processing
5. Closing
6. Funding
The Process of Refinancing
Here’s a step-by-step guide to applying for a refinance.
Have Questions?
Our mortgage experts
are ready to help:
808-693-2222
Ready to Apply?
Get started online.
REFINANCING YOUR HOME IN HAWAII
18
OURSTEPBYSTEPGUIDE
Step 1:
Watch the rates
Interest rates fluctuate daily, so you want
to make sure they’re still low enough to
justify the expense of refinancing.
Step 2:
Choose a lender
It’s a good idea to compare lenders,
not only for the interest rate they
can offer you, but also on the points
that might be available, the fees and
charges you may have to pay, and
other considerations, including the
reputation of each lender and the
level of customer service offered.
REFINANCING YOUR HOME IN HAWAII
19
Step 3:
Fill out an application
When you’re ready to apply, a loan
officer can take you through the
application process and outline all the
steps you need to take. You’ll need to
provide basic financial information about
your income, assets, debts and what kind
of refinancing you are seeking. See the
next section for the documents you’ll
need to submit.
When you’re
ready to apply, a
Bank of Hawaii
loan officer can
take you through
the application
process and outline
all the steps you
need to take.
Step 4:
Application processing
Aer all the information on your
application is entered, the lender’s
underwriting department will pull your
credit report and assess whether or
not you and your property meet their
lending standards. You may be asked for
additional documentation if anything is
unclear in your application.
REFINANCING YOUR HOME IN HAWAII
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Step 5:
Closing
Get ready to sign lots of documents.
A representative will contact you about
scheduling the closing. Sometimes this
will be someone from your lending
institution, but oen lenders outsource
this to other agents, or to an escrow
company. Closings for refinancing are
oen much less formal than you might
remember from your original home
purchase, and can be done just about
anywhere, even at your home.
Closing for
refinancing can
be done just about
anywhere, even
at your home.
Step 6:
Funding
The Federal Truth in Lending Act gives
you three business days to change your
mind about refinancing. This is called
the Right of Rescission, and you’re
entitled to back out of the refinance
without having to answer any questions
from the lender. Aer the three days
have elapsed, and your lender will pay
off your existing mortgage. If you chose
a cash-out refinance, you will receive a
check shortly.
REFINANCING YOUR HOME IN HAWAII
Debts: When reviewing your credit report, lenders will be looking at all your outstanding
debts including mortgage and home equity, student loans, car loans and credit cards, and
evaluating your debt-to-income ratio. The Federal housing guideline calls for a maximum
ratio of 43 percent, meaning that your total monthly debt payments—including credit
cards, student loans and your potential new mortgage payment—shouldn’t be more than
43 percent of your monthly gross income.
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Proof of income: You’ll need to document your income by providing pay stubs, W-2 and
1099 forms and tax returns. Usually, consecutive pay stubs covering one month (30 days)
will satisfy a bank that your income hasn’t changed since your last tax filing, and you can
still afford your goals. For your tax documents, lenders will want to review two year’s worth
(three years if you are self-employed).
DOCUMENTSANDINFORMATIONYOU’LLNEEDTOREFINANCE
You can expect to produce many of the same documentation during a refinance as you did when
you got your original mortgage. Here are some of the documents that lenders will require:
Proof of insurance: Lenders oen require borrowers to have homeowner’s insurance.
Because your home will be used as collateral for your refinanced mortgage, they’ll want to
be protected against damage to the home, as well as any dispute over its title.
Credit information: The lender will pull your credit report aer you provide your Social
Security number and other details. In general, you’ll need a credit score of 620 or more
to qualify for a standard mortgage loan, although some lenders require a higher score for
certain kinds of loan programs. Additionally, a higher score can afford you a better rate.
Assets: Lenders will want to know about what other financial assets you have beyond the
property you’re refinancing. Most Hawaii residents will simply need a copy of the most
recent two or three months of checking account, savings accounts, and 401(k) retirement
plan statements. If you have money in the stock market, mutual funds or certificates of
deposit, you’ll also need your most recent brokerage or bank statements.
REFINANCING YOUR HOME IN HAWAII
Expert Help is Available from Bank of Hawaii
As you can see, refinancing can offer many upsides, including helping you potentially lower your
monthly payment, extract equity and possibly shorten your loan’s term. Of course there are also
conditions and costs you need to understand before moving forward—fortunately, there are
experienced mortgage loan officers who can walk you through the entire process, help analyze your
specific mortgage situation and turn your refinance into a breeze. If you think a refinance might be
right for you, get in touch with an expert to learn more.
If you think a refinance might be right for you,
get in touch with an expert to learn more.
22
Have Questions?
Our mortgage experts
are ready to help:
808-693-2222
Ready to Apply?
Get started online.
REFINANCING YOUR HOME IN HAWAII
NOTES
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REFINANCING YOUR HOME IN HAWAII
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REFINANCING YOUR HOME IN HAWAII
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