Refinancing your home loan replaces it with a new one. When you refinance a mortgage, funds that were previously being sent to the home seller get redirected to pay off the balance of the old mortgage.
People refinance a mortgage for several reasons, including:
– Tapping into equity.
– Converting an adjustable-rate mortgage into a fixed-rate mortgage.
– Reducing the monthly payment.
– Getting rid of FHA mortgage insurance.
– Paying off the loan sooner.
Things to Do Before Refinancing Your Mortgage
Before you begin the refinancing process, you must lay some groundwork. Make sure you:
Work the Numbers: Use a mortgage refinance calculator to get an estimate of your new loan amount and interest rate.
Research to Get the Best Refinance Rate: Research mortgage refinance lenders and get a Loan Estimate (a 3-page document that enlists the projected payments, loan terms, and estimated closing costs and other fees) from each one.
Compare Lenders: Put the mortgage refinance calculator to use once again and compare what each lender is offering.
How to Refinance a Mortgage
After completing the above steps, here’s how you should go about refinancing your mortgage:
Decide Your Goal: Be sure of what your end goal is. Are you refinancing your mortgage to shorten the loan term, reduce the monthly payment, tap into equity, or to achieve any of the other aforementioned results?
Explore Your Options: Shop around to figure out which refinance rate is the best for you. Make sure you check the fees too.
Apply for A Mortgage: Submit your application to at least 3-5 lenders. Do so within two weeks to avoid any negative impact on your credit score.
Pick a Lender: Based on your evaluation of the Loan Estimate provided by each lender, choose the offer best suited to your needs. The Loan Estimate will also tell you what closing costs to expect.
Lock Your Interest Rate: Locking the interest rate means that it won’t change during a specified period. You and the lender try to close on the loan before the locked rate expires.
Close the Loan: Closing the loan includes paying the closing costs stated in the Loan Estimate and the Closing Disclosure.
If you don’t plan well, refinancing your mortgage can prove to be troublesome. Make sure you cover all your bases before you begin the process to save as much money as possible.