Find out why you need to refinance and things to consider before refinancing. Learn how to refinance your home mortgage in simple, easy-to-follow steps.
- Introduction
Many homeowner plan to refinance their mortgage, but they are unaware of the proper refinancing process and factors to consider. If you are one of them, first, you need to understand how mortgage refinance works. Consider the mortgage refinance interest rates, terms, and conditions to get the best refinancing option.
- Understanding Mortgage Refinance & Its Types
Taking out another loan to pay your initial loan with new terms and interest rate is mortgage refinancing.
There are several reasons to refinance your existing mortgage. High interest rates, too many fees, strict loan terms, wrong type of loan are some common reasons to refinance. If you are planning to refinance, take time to search and consider the best lender, mortgage refinance interest rates, and terms.
For instance, you took an initial loan of 200,000$ with an 8% interest rate. You improved your credit with time, but you still have a loan of 180,000$. You can refinance your mortgage and get a lower interest rate of 6 to 7%.
Before applying for mortgage refinance, you need to understand the types to make informed decisions:
- Rate & Term Refinance
You can get a new mortgage with a new rate and terms to replace your current mortgage. Also, you can refinance your mortgage with a lower interest rate to accelerate your current payment plan.
- Cash-out Refinance
A cash-out mortgage refinance allows people to take a new, larger mortgage based on their property. You can also use the extra amount to renovate your home.
- Streamline Refinance
A streamline refinance requires less paperwork than other mortgage refinance options. But it is only available for FHA- and VA-backed loans.
- No-Closing-Cost Refinance
In a no-closing-cost refinance, lenders roll initial expenses into the final loan amount. So you don’t need to pay the upfront closing costs from your pocket.
- How to Refinance Your Home Mortgage? Complete Step-By-Step Process
The mortgage refinancing process is similar to securing your first mortgage. But if you feel difficulty with home mortgage refinance, you can consult finance experts for suggestions and guidance.
Step 1: Reason For Home Mortgage Refinance
Set a clear reason why you are refinancing your home mortgage. Whether you want to lower your mortgage refinance interest rates or plan to shorten your mortgage term, you need to decide first.
Step 2: Check Your Credit Score and Financial History
Understand and fulfill the requirements to qualify for Mortgage refinance approval, just like a traditional home loan. You should have a high credit score and good financial history to get the best mortgage refinance.
| You can use an online mortgage refinance calculator to get clear estimates and proper calculations to make a smarter decision. |
Step 3: Determine Your Home Equity
Check your current mortgage statement to figure out your home equity or current balance. Then, consult a professional appraiser to get your estimated home value. The difference between these two amounts is your home equity.
Step 4: Visit Multiple Mortgage Lenders
Get quotes from three to five mortgage lenders to choose the best mortgage refinance. Discuss when to lock your rate with your lender to get free from worries of climbing mortgage refinance rates.
| Also, pay attention to additional loan fees or upfront payments along with the interest rate while comparing quotes from different lenders. |
Step 5: Get your paperwork in order
Collect your most recent pay stubs, bank statements, federal tax returns, and other financial documents your mortgage lender requests. Your lender needs to consider your credit score and net worth, so disclose all your available assets upfront.
Step 6: Close the Loan
Once you are done with the paperwork, get the closing disclosure. Here, you may need to pay closing costs listed in the disclosure to finalize the loan.
- Conclusion:
Are you still worried whether mortgage refinancing will work for you or not? You need to consult a finance expert to get advice. Explain your situation clearly to get the most suitable suggestions. Mortgage rates are increasing day by day. So, it depends on your finances whether you need a refinance or not. Consider your monthly payment, balance, credit score, and loan term to figure out what’s right for you.
- Frequently Asked Questions:
How does mortgage refinancing work?
In mortgage refinancing, you can replace your current mortgage with a new mortgage with different terms and interest rate. The new lender will pay your old mortgage, offering favourable terms and lower mortgage rates.
How long do I need to wait after closing to refinance?
You should wait at least six to eight months after closing to get a mortgage refinance. In some cases, you may need to wait even longer.
Can I go for frequent mortgage refinancing?
You can refinance your mortgage frequently, depending on your finances. However, consider the closing costs that you need to pay every time you refinance.
What is a rate lock?
Mortgage refinance interest rates often fluctuate. When you select your lender, you can lock your interest rate to save if the rate rises.
How much time mortgage refinance take to approve?
It mostly takes 30 to 60 days, depending on your credit score and financial history.