At some point in the life of your home loan, you may want to refinance your home. This is a fairly simple process, but one that you must be knowledgeable about. There are many ways that you can refinance with different lenders, and you need to be careful when doing so.
Sometimes you need the extra money for other debts that you may have. You might just want to have a low, or lav, interest rate, so you can refinance for that reason. You can also refinance if you want to pay for an amazing trip of a lifetime, a wedding, or maybe to remodel your home. All of these are good reasons to refinance.
This article will tell you some ways that you can refinance your home to lower your interest rate. It helps if you have a great credit history and credit score. You can refinance for lower interest rates if you have a fair to good history, as well.
What is Mortgage Refinance?
A mortgage refinance is replacing your current loan with a new one, hopefully at a lower interest rate. You usually will not want to refinance your home if you can’t lower your interest rate by at least half a point. It won’t save you any money and you will end up spending more money in the long term of your loan. One type of refinance is a cash-out refinance that allows you to have a lower interest loan with cash from the loan given back to you.
How to Refinance Your Loan
- Set a Clear Financial Goal
If you are trying to refinance your home, you want to have a clear financial goal in mind before you do so. You will want to know how much interest you want to save and how much money you want to get out of the new loan. You will also want to know how long you will be paying the new loan back.
- Check Your Credit History and Score
You will want to check your credit history and credit score before you start applying for loans. If you check your credit yourself, it doesn’t affect your credit scores at all, but if you let the lenders check it, your score could be lower. So, check out your score and then fix any damage that might be on it. For example, there may be some information on their that is inaccurate or there might be a bill that you forgot to pay. If there are things that need to be changed, fix it before you apply.
- Determine How Much Home Equity You Have
Home equity is the amount of your home that you own outright without any payments. You begin to build home equity with your first payment and own you house outright when you have paid your loan in full. If you have not paid you loan in full, but have been paying for a number of years, you will have equity in your home. You will need to check home values in your area so that you can figure out how much equity that you have. For example, if your home is worth $325,000 and you still owe $250,000 on it, you have $75,000 in home equity.
- Shop Multiple Home Lenders
You can start with your current lender, but you don’t have to stay with them. Do an online search first so that the lenders aren’t checking your credit right away. Compare interest rates and other fees that the lenders might have. See here for current interest rates on homes: https://www.bankrate.com/mortgages/mortgage-rates/. Once you have found two or three lenders that have fess that you can live with, you can apply at those and see which lender can give you the best deal. Don’t apply to too many lenders, you will hurt your credit history. Choose the best and go from there to get your best deal.
- Get Your Paperwork in Order
You want to make sure that you have all your paperwork in order. This can include proof of income, proof of your address, federal tax records, and bank statements, and anything else that you might need. You want the lender to know all your liabilities and assets up front. You don’t want any surprises to happen for you or the lender.
- Prepare for Home Appraisal
You will need to have you home reappraised, as well. You might want to spruce your home up a little bit and mention to your lender any and all additions or improvements that you have made to your home. The appraiser will also check home values to similar homes in your neighborhood. You will want to make sure that you are getting the most for your home.
- Come to the Closing with Cash if Needed
Make sure that you have any cash that you need to have so that you can finalize your deal, especially if you refinanced just to get a lower interest rate. The lender could wrap up all the closing costs and other fees into your loan, but that will cost you more in interest fees and the cost of your loan.
- Keep Tabs on Your Loan
You will want to make sure that you keep all hard copies of your loan papers in a safe place. You might also want to set up automatic payments on your loan to save a little money each month. This will also keep your loan paid on time so that you don’t have to worry about it. You want to make sure that your loan is paid on time if you decide not to do automatic payments so that you don’t default on your loan. You will also want to watch to see if your primary lender sells your mortgage to a different lender so that you know who you are paying your mortgage to.
Reasons to Refinance Your Loan
If you can recoup the cost of refinancing your home in a reasonable amount of time, it might be the right thing to do depending on your goals. If your goals are to reduce your monthly mortgage payments, pay your mortgage off sooner, make your mortgage payments more manageable, to switch from an adjustable rate mortgage, or to take advantage of your home equity, these are all good reasons to refinance. There are many benefits to refinancing your home including freeing up money each month, paying off your home sooner, eliminating mortgage insurance, and locking your fixed interest rate.
You will need to know some key facts before you refinance your home. You will want to know what your credit history and your credit score are. You will want to know what interest rate you are paying and what the current interest rates are. You will need to know how much equity you have in your home and how much money that you can save if you refinance. If you can’t save much money or the interest rates are higher than the first time you mortgaged your home, you might want to hold off on refinancing your home until those interest rates go lower. If you have more equity in your home because housing prices have increased, you might want to refinance sooner than later.