Refinancing your mortgage is a great way to save money. Not only will you have the freedom to choose a new loan term and rate, but you’ll also be able to lower your monthly payments and interest. However, the process is not all sunshine and roses. It’s important to weigh the costs and benefits before making the decision to refinance.
The most obvious reason to refinance is to get a lower interest rate. While this can make a big difference in your budget, it’s not always the best financial move. In fact, a longer term loan could mean more expenses and a higher interest rate in the long run. Fortunately, there are ways to refinance while keeping your long-term goals in mind.
One of the first things you should do before refinancing is shop around for the best mortgage rates. This will not only lower your overall cost, it can also help you avoid losing out on an opportunity to make your home more valuable. You can use a mortgage calculator to find the right amount to borrow, and compare mortgage offerings.
There are two types of mortgages to consider when you refinance. A basic refinance changes the terms of your existing loan, and a cash-out refinance is the most drastic. Both types allow you to tap into the equity in your home. With a cash-out refinance, you can take out more money than you originally owed, which is generally paid as cash at closing.
Mortgage refinancing is a process that typically takes 15 to 45 days. During this time, you will be asked to provide documentation to verify your income and assets. Your lender will also conduct an appraisal to determine the value of your property. Upon completion of the appraisal, the lender will send you a Closing Disclosure, which includes final numbers for the loan.
The most common reasons to refinance are to get a better interest rate and to reduce your monthly payment. If you have an adjustable rate mortgage (ARM), you might want to refinance before the rate rises.
When considering a mortgage refinance, you should also check your credit score to make sure it meets the requirements for a new loan. Some lenders will waive requirements for borrowers who have already gone through the process. Make sure to have a few different lenders on hand, though. Check to see if any of them offer no-closing-cost refinance loans, which can make the process a lot easier on your wallet.
Before you start the refinancing process, you should make a list of any major repairs or improvements that you plan to make to your house. Those upgrades will add value to your home, and you may also be able to use the extra cash from your refinance to pay off other debts.
Remember, when shopping for a refinance, the key is to find a lender that is willing to do what’s best for your situation. That may mean choosing a lender that has no closing costs, or a lender that will waive fees for certain loan features, such as no appraisal or inspection.