Refinancing a home is not the right choice for everyone, and not every homeowner may qualify. But, in many situations, refinancing can save you loads of money, both short term and in the long run. If you think this might be the best course of action for you and your family, take a look at what’s involved in the process and ensure you’re making the best decision for your home and your wallet.
Decide what you’re looking for.
The first step is looking at why you would like to refinance your home. For many people, it involves saving money. If you find a great interest rate available at a fraction of what you’re paying now, refinancing will save you big on those monthly payments. For those who find themselves with a little extra money and the ability to pay more each month, refinancing from a 30-year mortgage to a 15-year will help you pay off your home much more quickly.
You may also find yourself in need of quick cash for an emergency, and refinancing will give you access to some of the money you already paid on your home. Or, your reasoning may be moving to a fixed-rate loan, where your interest rate will be locked in for the life of the loan. Whatever your reasoning, know what you’re looking for before you seek out a mortgage refinance lender.
Can you afford it?
The next step is to use a house payment calculator to look at what you’re paying now and compare it to your new potential mortgage. Try out a couple scenarios, and see what fits best for your budget. Then bring that information to a mortgage lender and see if you’re approved. As mentioned, not every homeowner may qualify for refinancing. If your credit or income have gone down since you purchased a home, this may negatively affect your chances of refinancing, even if your new payments will be lower monthly. This can be a difficult spot for those who need to save money and can’t because of their monthly mortgage payments, but cannot get a lender on board to assist.
That’s why it’s important to shop around for the best lender, who will work with your financial situation and get you the best rates and payment plan possible. Different lenders may have programs available for saving money. You may be tempted to refinance with the company you already hold a mortgage with, but asking around and comparing rates will help you save the most money in the end.
Begin the process.
Once the process starts, it will be a lot like the first time you took out a mortgage. You’ll be subject to the same credit checks, pulling bank statements and ensuring you’re in the right financial situation to pay off your loan. Once you’re approved, you’ll be able to choose from one of three types of refinance loans.
- Rate-and-Term Refinance – Best for switching to a fixed-rate, or lowering interest rates
- Cash-Out Refinance – Will leave you with cash in hand now, but more to pay back later
- Cash-In Refinance – For those able to pay down their balance by giving a lump sum up front, which may help you get rid of that pesky mortgage insurance you’ve been paying
Your lender will discuss the right path for you and your needs and walk you through the process from beginning to end.