Refinancing your mortgage can help you save a lot of money over the life of the loan. It can reduce your monthly payments, reduce the amount of interest you have to pay over the term of the loan, and give you the option of a different loan term. However, the decision to refinance your mortgage should be made carefully. You want to get the best deal for your situation, and you may have to shop around a bit.
Generally, there are two main ways to do this. One is through a rate-and-term refinance. This is the most basic of the two options, and can result in a lower interest rate and a shorter term. Alternatively, you can take out a cash-out refinance, which requires you to borrow more than the current balance of your mortgage. The money left over is then tapped to pay for home improvements or to pay down debt.
If you are considering a refinance, make sure to choose a lender you trust. A reputable company will be able to walk you through the process, and offer you a variety of loan terms and rates to suit your budget. There are also lenders that will offer you no-closing-cost refinance loans.
When you decide to refinance, your mortgage lender will order an appraisal. An appraisal is a good idea because it will give you an estimate of the value of your home. By determining the value of your home, you will know how much to borrow to fund your new loan.
Once you determine the value of your home, you will need to decide if you need to make any upgrades. These can include things like installing a new roof or adding insulation. In addition to improving the value of your home, you can also use the equity in your home to pay for major expenses such as college tuition or a family vacation.
Once you have decided to refinance your mortgage, you will need to prepare for the closing. Depending on the type of loan you choose, you may have to pay for an appraisal, attorney fees, and other costs. Be sure to budget for these expenses, and weigh the benefits of a refinance against its drawbacks.
The most important step in the process is choosing a new loan with a better interest rate. A low interest rate can decrease the amount of interest you have to pay over time, and a shorter-term mortgage will make your payments easier to afford.
Before you sign a mortgage contract, you will have to fill out a form. Some lenders require you to provide proof of income, including your tax returns from the past couple of years. Self-employed individuals will need even more documentation. For example, you might have to prove your spouse is also employed. Also, you might need to include a few minor repairs to your home.
Although refinancing can be a good move for many people, it is not always a financially prudent one. Unless you are able to find a loan with a lower interest rate than your old mortgage, you may end up paying more than you should.