Homeowners who are looking for a better mortgage rate or terms may consider refinancing their home. Refinancing essentially means replacing your current mortgage with a new one.
The refinancing process will be similar to when you applied for your first mortgage. That is, you’ll want to do some research to find the best loan for you. Make sure you are comfortable with the lender. Next, collect all your documentation and submit an application to a lender.
Reasons to refinance your mortgage
There are many different reasons that homeowners may want to refinance. These can include:
- Lowering your monthly payment – A lower interest rate can reduce your monthly payments, and save you money throughout the life of your loan.
- To remove private mortgage insurance – If you have over 20% of equity in your home, removing the private mortgage insurance can save you money.
- To reduce the length of your loan – Choosing a shorter-term mortgage can help you pay off the loan faster, giving you financial freedom sooner.
- Consolidation of debts and loans – Mortgages have lower interest rates than credit cards and other loans, which makes consolidation a good way to get out of debt faster.
- Refinance mortgage can help pay your home off faster – If you are able to afford it, paying higher monthly fees can help you pay off the mortgage quicker.
Refinancing is not the best option for everyone. If you are not sure if it is the right decision for you, consider asking a professional for refinancing mortgages help.
How to choose a Mortgage Lender
Finding a mortgage lender isn’t as difficult as it may seem. Yet, while there are many options you can consider, you will need to decide which avenue is the best one for you.
Here are some of the main mortgage lender providers:
- Banks – Financial institutions like banks are the most traditional mortgage lending option. If you already have an account at the bank, you may be offered better rates and terms.
- Mortgage brokers – A mortgage broker doesn’t lend you the money directly like a bank. Rather, they help you with the shopping process and try to find the best mortgage for your situation.
- Private lenders – You may also want to investigate private lenders that offer mortgages to homeowners.
As you do your research and consider which lender fits your needs, here are some things to keep in mind:
- Rates – Everyone will tell you that the mortgage rate is the essential element of a loan. The lower the rate, the better the mortgage, or so it is thought. To qualify for a low rate you’ll need to have a good credit score and a low debt-to-income ratio. If you don’t have both of these things, lenders may not offer you their lowest rates.
- Loan terms – Mortgages come in a variety of different terms and conditions. You can have a 15-year mortgage, a 25-year mortgage or even a 30-year mortgage. The shorter your term, the more you will pay each month but the faster you’ll be mortgage-free.
- Property insurance – If you already have insurance, check with your new lender if they approve of the package or if you need to get a different insurance provider.
- Closing costs – Even with a mortgage refinance, you need to pay closing costs. It is important to know what these are and if there are any programs available to help you cover the costs.
- Additional fees – Some mortgages come with hidden fees or extra costs. Ask your lender or mortgage broker what other fees you may need to pay before your refinancing is approved.
Common Questions to ask a Lender
Although refinancing is similar to the first time you applied for a mortgage, there may be some other things you want to know. Here are some questions that you should ask a lender:
- How will the new refinancing fee affect me?
- Be sure that you understand the full cost of refinancing. Ask your lender about any refinancing fees that you’ll have to pay.
- Do you offer rate locks?
- If you find a mortgage rate you like, it is a good idea to ask for a rate lock. This secures the rate for you while the lender works through the application process.
- Can I reach my goal some other way?
- Depending on your reason for refinancing there may be other ways you can achieve it. It may also cost you more to refinance when the fees and closing costs are calculated in.
- How much equity can I cash out?
- Lenders will let you borrow up to 80% of the home’s value. So, you will be able to cash out the difference between what you owe and 80% of your home’s value.
Is Refinancing Right for you?
Before you start applying for mortgage refinancing, be sure that you are ready to take on the loan. Consider your budget. Also think about what is most important to you in a lender. Pick one that best matches.
If you want a little help deciding if refinancing is right for you, ask a professional for refinancing mortgages help.
