Refinancing Your Mortgage 101: Everything You Need to Know

Refinancing Your Mortgage 101: Everything You Need to Know

What is a Mortgage Refinance?

Refinancing your mortgage loan is the process of using a new home loan to replace an existing home loan. The new loan serves to pay off the old mortgage, which will in turn leave the loan satisfied and the account closed.

In this case, you will be bound to the terms of the new mortgage loan until it is repaid. The process typically looks the same as your first loan, meaning you will have to apply for and go through many of the same underwriting steps as when you first bought your home, verifying your credit history, income, and current debt burden.  The process can take anywhere from a few days to a month or more, of course depending upon you and your financial situation.

5 Reasons to Refinance Your Mortgage

  • Chance of Interest Rate Reduction 

The interest rate of your mortgage loan dictates how much your loan will end up costing you in the end. The difference in an APR point can mean you will save thousands of dollars over the years. If market interest rates drop or your credit score has improved enough, you might qualify for a notably lower interest rate, consider refinancing.

  • Adjust your Monthly Payment 

Refinancing will allow you to change any of your home mortgage terms. If you are struggling, or need a lower monthly payment, your loan term can be extended to give you a lower monthly payment requirement, even if your interest rate doesn't improve.

  • Use it to Pull Equity from Your Home 

If your property is worth more than you owe on it, a cash-out refinance allows you to withdraw equity in cash. You can use that cash to pay off debt, purchase a new property, cover big expenses, or have a cash safety net.

  • Change Your Mortgage Loan Type 

There are plenty of types of mortgage loans, including conventional and government-backed options. Federally-secured loans, like FHA loans, have additional fees and limitations that homeowners might want to eliminate as the years go on. A homeowner with an adjustable-rate mortgage might want to switch to a fixed-rate mortgage. Refinancing into a conventional loan can accomplish this wish.

  • Remove a Co-borrower 

This is an interesting take and my opinion: "If you have purchased a home with a co-borrower, like a parent or a spouse, you should take over the loan by yourself. If your mortgage lender won't allow you to release the co-borrower, you can refinance into a new loan on your own if you qualify."

When Should You Refinance Your Mortgage?

If you are considering a mortgage refinance, it is important to consider whether the savings and other benefits outweigh the cost. For plenty of homeowners, it can be wise to crunch the refi numbers if the following happens:

  • Your credit score improves, therefore unlocking lower rates and better loan terms.
  • Market rates drop, allowing you access to better loan terms without changing anything else about your own creditworthiness.
  • You need to pull cash out of your home's equity.

Refinancing your mortgage is right for different homeowners at different points in their lives, all for different reasons. Refinancing too soon after purchasing the home can have some implications, however, if the numbers are right, refinancing can be a great way to adjust your mortgage loan to suit you even better. It is always important to consider how long you will live in the home and how much your new loan will save you in the long run, as it is always important to note how long it will take for your refi's savings to surpass the new loan's costs.

Would you be interested in learning more about refinancing your mortgage? Use this guide to start the process of understanding the long road ahead of refinancing your mortgage, and allow The Las Vegas Luxury Home Pro agents to guide you into finding a home worth the refinance.

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