As a homeowner, offers to refinance seem to come your way as surely as trails of ants arrive at picnics. When you’re just settling into your new home, it can be incredibly disheartening. With all the work that you put into finding the right mortgage, the last thing that you want to think about is changing it. Tossing those refinancing offers can get to be a habit. If it’s one that you’ve developed, it might be time to break it because learning how to refinance a mortgage is sometimes a wise idea.
Exploring How to Refinance a Mortgage
Savvy homeowners often take the time to explore refinancing. After all, you may be perfectly content with your current home loan now, but there are several reasons why people opt to refinance. If one of those reasons comes into play for you, being aware of your options and knowing how to refinance a mortgage will give you a real advantage.
What Is Refinancing?
As CNN explains, refinancing involves paying off your existing mortgage by replacing it with a brand-new home loan. The process is generally similar to applying for a home loan.
Reasons to Refinance
Why do homeowners refinance? As Investopedia explains, there are several reasons why a homeowner might decide to refinance their home loan:
- Lower your interest rate. Refinancing to snag a lower interest rate can reduce the cost of your monthly payment and your total loan, producing significant savings.
- Shorten your loan term. When interest rates fall, some homeowners find that they can refinance into a loan with the same payment but a shorter term, or time period. Again, the result can be substantial savings.
- Change your loan type. Refinancing can be a way to switch between adjustable-rate mortgages and fixed-rate mortgages.
- Tap into your equity. Homeowners who have amassed equity can use a cash-out refinance to tap it if they’d like to convert it to cash to fund renovations, pay for education, make investments, or consolidate debts.
- Get rid of your mortgage insurance. Whether it’s private mortgage insurance or FHA mortgage insurance, refinancing may offer a way to quit paying for this extra expense.
How to Refinance
Refinancing isn’t difficult. NerdWallet offers step-by-step instructions for how to do it:
- Determine your goal. Why are you refinancing? Do you want a lower monthly payment? Are you eager to ditch your mortgage insurance? Do you want to cash out some of your equity so that you can renovate your home? Like purchase loans, refinancing products come in several varieties. Knowing why you want to refinance can help you choose the right refinancing loan for your goals.
- Shop for the best mortgage refinance rate. Check out the interest rates being offered. Keep an eye on fees and loan terms. Be mindful of the fine print.
- Get quotes from three to five lenders. If you decide to apply with multiple lenders, try to submit all your applications within a two-week period. This can help minimize the hit to your credit score.
- Choose your refinance lender. Select the best offer. Review the Loan Estimate to see how much cash you’ll need for closing costs.
- Lock in your interest rate. Locking your interest rate ensures that it stays the same for a specific period. Hopefully, you’ll be able to close before your rate lock expires.
- Go to closing. When you go to closing, the original loan will be paid off, and your new loan will officially take its place. You’ll pay the closing costs that were listed on the Closing Disclosure. The process will be familiar because it’s very similar to what you went through for the closing on your purchase loan.
How Much Does It Cost to Refinance a Mortgage?
When you’re trying to decide whether it could be the right time to refinance, you have to consider the price tag. According to Credible, the fees charged will vary from lender to lender, but closing costs are generally between two and five percent of the total loan amount.
At PrimeLending Twin Cities, we’re ready to help you reach your housing goals. Whether you’re buying, renovating, or refinancing, reach out to our loan experts. We would be happy to discuss which loan products might be best for your situation.