Mortgage Refinancing Could Help You Save Money or Tap Equity

Mortgage refinancing replaces your home loan with a new one. The new mortgage pays off the old home loan’s balance rather than going to the home seller, which was the case with your original home loan

Why Do People Refinance a Mortgage?

People refinance their mortgage for several reasons, including:

Reducing the Monthly Payment: If your goal is to make smaller monthly payments, you can refinance the mortgage with a lower interest rate. You could also extend the loan term to lower the monthly payments, but that would increase the interest you pay during the loan term.

Paying Less Interest: Reducing the term of your loan by refinancing the mortgage also means you pay off the loan faster, along with paying less interest. However, shortening the loan term usually increases the monthly payments

Tapping Into Equity: Refinancing a mortgage to borrow more than what you owe on your current home loan leads to the lender giving you a check for the difference. This is known as a cash-out refinance, which people typically get along with a lower interest rate.

Getting Rid of FHA Mortgage Insurance: Federal Housing Administration (FHA) loans require you to pay a mortgage insurance premium (MIP), which cannot be canceled. To cancel this premium, you can only either sell your home or refinance your mortgage after accumulating enough equity.

How to Refinance a Mortgage?

The steps to refinancing are as follows:

Set Your Goal: Do you want to refinance the mortgage to pay less interest, reduce the monthly payments, tap into equity, or get rid of FHA mortgage insurance?

Look Around for The Best Mortgage Refinance Rate: Don’t miss checking the fees attached to each loan.

Apply for A Mortgage with 3-5 Lenders: Submit all the applications within two weeks to minimize the effect on your credit score.

Choose a Lender: To figure out the best offer, compare the Loan Estimate document each lender gives you after you apply. This document will tell you how much the closing costs would be.

Lock Your Interest Rate: Locking your interest rate means it can’t change during a specified period. The lender and you work on closing the loan before this rate lock expires.

Close on The Loan: This last step is where you pay the closing costs mentioned in the Loan Estimate document and the Closing Disclosure.