Refinancing your mortgage is the best way to get a better deal on your home loan. If you’re thinking about refinancing, there are a few things that you should know before you take the plunge.
What Is Refinancing?
When you buy a home, you apply for a mortgage to finance the purchase. The lender gives you the money that goes to the house’s seller. When refinancing a home, the old mortgage is paid off with a new loan on better terms.
How and When to Refinance Your Home
Before you begin the refinancing process, ask yourself why you want to refinance your home loan. Your goal will determine how the process unfolds.
Lower the Monthly Payment
You can lower your monthly payments by refinancing into a loan with a lower interest rate. Another option for reducing monthly payments is to lengthen the loan term. The major drawback to extending the duration of your loan, however, is that you will have to pay more interest over time.
Tap Into Equity
When you refinance and borrow more than the current balance on your mortgage, the lender writes you a check for the difference. This is known as a cash-out refinance.
Pay Off the Loan Quicker
By refinancing a 30-year loan into a 15-year loan, you’ll pay off the debt in half the time. As a result, you save money in interest payments over the life of the loan. The only drawback is that your monthly payments usually increase.
Switching to A Fixed-Rate Loan
Interest rates on fixed-rate loans don’t change, but your interest rate on an adjustable-rate mortgage (ARM) can go up over time.
Here’s a Step-By-Step Guide to Help You Refinance Your Mortgage.
Set a Goal for Yourself: Do You Want to Pay Less Each Month or Shorten the Length of Your Loan?
Get the Best Rates for Your Mortgage Refinancing: Keep an Eye on The Fees You Will Be Charged.
Apply for A Mortgage with Several Lenders: To Minimize the Impact on Your Credit Score, Submit All Applications Within Two Weeks.
Pick a Lender: Compare the Loan Estimate Documents Each Lender Provides After You Apply to See Which Offer Is Best for You.
Lock in The Interest Rate: When You Lock the Interest Rate on A Loan, the Lender Can’t Change the Rate for A Specified Period. You’ll Work with The Lender to Try to Close the Loan Before the Rate Lock Expires.
Close on The Loan as Soon as Possible: That’s when You’ll Pay the Closing Costs Listed in Both Your Loan Estimate and Closing Disclosure.
