Mortgages can be hard to keep up with when you have so many other expenses. However, unlike those other expenses, you have several options to handle a mortgage. One of these options is the ability to refinance your mortgage.
Mortgage refinance is when you replace your current loan with a new one at a different, reduced interest rate. The idea is to reduce the monthly payments, interest rates, or make use of the home’s equity.
Some people use it to pay their loans faster, while others refinance mortgages to go from an adjustable-rate loan to a fixed-rate loan.
Should You Refinance Your Mortgage?
Before you get into refinancing your mortgage, you should look into the reasons for doing so. A good rule is that if you have at least 3 of the following reasons, you should consider refinancing.
Here are the main reasons for refinancing mortgages.
- Reducing Monthly Payments – If you want to reduce the monthly payment you make, which can be done by increasing the loan term.
- Paying the Loan Faster – If you want to pay the loan faster which is usually done by reducing the loan term.
- Tapping into Your Home’s Equity – If you want to get a cash-out from your home’s equity when you’re in need of some liquidity.
- Getting Rid of FHA Mortgage Insurance – If you want to get rid of the Federal Housing Administration mortgage insurance premium.
- Switching Interest Rates – If you want to switch from an adjustable to a fixed-rate interest loan.
If 3 or more of these reasons resonate with you, consider refinancing your mortgage.
Mortgage Refinance Calculator
It’s important to use a mortgage refinance calculator to get an idea about your refinanced interest rates and loan amounts. When you enter the relevant data in the calculator, it will show you your new payments, monthly savings, lifetime savings, and the costs of refinancing.
It can also show you break-even points as getting a mortgage entails a lot of fees. It takes time to reach refinance break-even because the fees can run into thousands of dollars.
A mortgage refinance calculator lets you know what to expect, gives you an estimate on loan-related numbers, and can help you figure out the best deal.
After you’ve done your calculations, you need to check out the different rates provided by different lenders. You will need to do some hefty online research and lots of phone calls but in the end, you will find the best mortgage refinance rate according to your requirements.
You will get a loan estimate from each lender. This will include the details regarding loan terms, estimated costs, fees, and projected payments.
You then have to compare each lender’s loan estimates and pick the right lender. Your mortgage refinance calculator will come in handy here.
Steps to Refinancing Your Mortgage
If you have all the information you need and are ready to start the refinance process, follow these steps.
- Start by setting your goal, which can either be to reduce monthly payments, get rid of FHA mortgage insurance, or to shorten the loan term.
- Examine several lenders to get the best mortgage refinance rate by comparing their fees and overall costs.
- It’s best to apply for a mortgage refinance with two to five lenders and submit your applications with them within 14 days. This will help reduce the impact on your credit score.
- When you’re done and have the options available, choose the lender that’s giving you the best offer. You will have to compare the loan estimate documents provided by each lender which will show the closing costs for each loan. Depending on how much cash you’ll need, you can decide on a lender.
- Make sure you lock the interest rate as it cannot be changed during that specific time after it’s locked. The ideal situation would be to close the loan before the rate lock expires for both the lender and you.
- Lastly, you need to finalize everything and close on the loan. This means you’ll have to whip up some cash and pay the closing costs that were listed in the loan estimate document and the closing disclosure. When you close on your refinanced loan, you’re officially done, and now have a new mortgage against your current home.
Follow the aforementioned steps in that order, when you have everything you need in place. Keep these points as a checklist if you want.
In addition, refinancing is not as difficult as thought out to be. There are companies that assist with refinancing. For example, Futurefuel is one such company that helps refinance student loans. Look into the market and you’ll surely find a similar solution for mortgages.
If you’re an employer who has a worker with refinancing issues, you can help them out. By improving your compensation management, and making sure said worker is taken care of, you can make their life easier.
Mortgage refinance is one of the better options when it comes to handling your loan. There are plenty of other avenues one can take but refinancing your mortgage according to your needs and situation is always the smart choice.
If you’re ever stuck, or are worried about your mortgage or your payments, consider a refinance to make things easier. In addition, if you’re wondering how to start investing, this is a beneficial guide for you too, as it takes care of domestic finances.