How To Refinance My Mortgage
Are you interested in refinancing your mortgage, but not exactly sure how to go about doing it? Luckily, when it comes to home ownership, refinancing your mortgage is a breeze compared to buying your own home. However, refinancing isn’t exactly a two-step process either. Unfortunately, it takes more than just a few phone calls or emails to refinance. Refinancing your mortgage is a process that takes time. But, if you follow this beginners guide on how to refinance my mortgage, the process is a lot easier.
Keep reading and you’ll be a refinancing pro in no time.
1. How to Refinance My Mortgage: Determine Your Goal
Before you get in too deep, you first need to understand why you are choosing to refinance your mortgage.
Understanding why you want to do it will help guide the rest of the process.
Lowering your mortgage payment is typically the main goal. However, don’t get so caught up in the monthly sticker price that you forget to see what it all comes with.
Refinancing for another full term will reduce your monthly payment. However, a full-term means it will take longer time pay off your home. Plus, you’ll end up paying more interest.
Resist the temptation to opt for an extension of your loan term. This will help you avoid paying a lot of interest over the loan’s lifetime. Instead, look to find a balance between affordable monthly payments and a reduction in borrowing costs.
Extra tip: When refinancing, make sure to also avoid balloon programs. These programs operate in such a way that if borrowers still own the property at the end of a fixed loan term, then the entire balance will be due.
2. Use a Refinance Calculator
Now that you’ve got an idea about a refinance term, it’s time to punch in the numbers.
A mortgage refinance calculator can give you a good idea of what to expect.
In order to calculate, you’ll need to give an estimate on the fees you’ll pay, as well as your new loan amount and interest rate. Input your data into the calculator and you will receive your new payment, your savings each month, your lifetime savings, and the amount of time it takes to break even.
Once you have a few estimates from lenders you can use the calculator to figure out which one is offering the best deal.
3. Learn Your Credit Score
Knowing your credit score is super important when it comes to refinancing your mortgage.
The better your credit score, the better interest rates you are going to be offered.
You can go to freecreditscore.com to obtain your report and score for free once a year.
4. Research Current Home Value
Do you know the current value of your home?
Knowing this will help you understand your refinancing rates better. While finding the exact value of your home isn’t really possible without an appraiser, you can do some detective work on your own to get an estimate.
Check out homes in your neighborhood like yours that are for sale to get an estimate.
Or, you can check out Zillow’s site to get an estimate of your own home.
5. How to Refinance My Mortgage: Shop Around For Best Rate
Now here comes the real leg, work, shopping for the best refinancing rate.
Start by shopping online to compare refinance rates. Or, you can subscribe to online listings to get rates delivered by email.
From each lender you are interested in, you will want to receive a loan estimate. In order to generate this loan estimate, the lender will need to receive your basic information. Then they have three business days to generate an estimate.
The estimate comes in a fairly straightforward three-page document. It details the terms of the loan, project payments, and an estimate on closing costs and other fees.
You’ll need to compare each lender’s details in order to decide upon the best one. Now’s the time to put that refinance calculator to work!
6. Be Aware of All Costs
Refinancing your home comes with a lot of additional, yet unavoidable fees that you should be aware of.
These fees include:
- Application fee: covers checking your credit report and processing the loan request
- Title Insurance and Research: covers cost to review public records in order to verify ownership
- Credit report charge
- Document processing fees
- Tax transfer costs
- Appraisal costs
- Recording fees
However, don’t worry too much about the cost breakdown of all of these fees. All of your potential lenders will give you a detailed estimate of what their fees are.
Just make sure to avoid any lenders who offer “no-cost refinance” plans. Because yes, this deal is too good to be true. All these lenders are doing is taking the refinancing fees and adding them to your monthly payment plan. Which basically means they are charging interest on these fees instead of a flat rate.
7. Gather Paperwork
Your lender is going to need certain paperwork during the loan process.
You might need to be prepared to jump through some hoops in order to gather your paperwork, as a lot of documents are stored online these days.
8. How to Refinance My Mortgage: Lock In Your Rate
Once you have everything in order, it’s time to lock in your new refinancing rate.
While you may find yourself hesitating at this point, keep in mind that interest rates can quickly change. If you have done your research and are confident in your lender of choice, it’s time to lock in that rate.
How to Refinance My Mortgage: Wrap Up
Hopefully, this guide has given you a clear picture of what you need to do to refinance your home.
As we said earlier, the process does take time. However, now that you have this guideline, the process should be much easier.
If you have any questions about refinancing, please drop a comment below. Otherwise. check out our home finance page for more information.
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