Mortgage refinancing is a way to lower your monthly payments by switching to a new loan with a lower interest rate. Refinancing can also help you avoid paying mortgage insurance premiums. However, it is important to be aware of the risks involved. Choosing the right type of mortgage is important, and it is recommended that you speak with a licensed mortgage consultant.
First, you will need to determine what your goals are. If you want to lower your monthly payment, it is a good idea to start by analyzing your savings and debt. Also, you should shop around for a better rate. It is best to find a rate that is at least 1% below the current rate. Once you have an idea of how much money you can save by refinancing, you will have to consider the fees and closing costs.
Secondly, you will need to make sure that you have a good credit score. Getting a better credit score is a way to qualify for a better rate, as it means that your chances of getting approved for a higher amount are increased. The first lender that you apply with will do a credit check, and it will appear on your credit report. Depending on the lender, this may affect your credit score. A single inquiry could drop your credit by up to five points, but a few more inquiries will only decrease it slightly.
After you have determined that you are eligible for a refinance, you will need to complete the application. The application process includes filling out a form and submitting it to three to five lenders. You will then receive a Loan Estimate, which is a simple three-page document detailing the costs and terms of the loan.
Depending on your circumstances, you may be able to get a cash-out refinance. This is a special type of refinance that allows you to borrow more than your existing loan balance. Using the extra money from this type of refinance, you can pay off other loans, such as credit cards. In addition, you can use the extra cash for home improvements, or to pay down other debts.
Another possible reason to refinance is to extend the term of your loan. Extending your loan can reduce your monthly payments, but it can also increase the total amount of interest you will have to pay over time. Even if you are able to take advantage of this type of refinance, you should still shop for the lowest interest rate.
Lastly, you will need to have your home appraised before you can refinance. An appraisal will tell you how much your house is worth and will determine whether you are eligible for a variety of loan options. When you have the loan estimate, it is helpful to run a few different scenarios in order to decide if refinancing is a good decision for you.
Before you start the process of refinancing, it is a good idea to do some research on recent home sales in your neighborhood. This will allow you to know what price you should set for your home.
