A few years after the conventional mortgage repayments, it’s not unusual for homeowners to start wondering whether they should refinance. Refinancing offers the benefit of saving you a lot of money and the convenience of a lower interest rate or a longer repayment period.
Do you remember how you secured a mortgage after buying your home? When you refinance, you are swapping your present mortgage for a newer and hopefully better terms. The new loan will pay off the first one.
Reasons why refinancing makes sense
The top reason homeowners refinance a mortgage is to benefit from a lower interest rate and get smaller monthly payments, but that’s not the only reason. You can also refinance a 30-year loan into a 15-year one, which will lead to larger payments, but fewer of them as well as lower total interest to pay.
You want to have smaller monthly payments. This is achieved via refinancing to reduce your mortgage’s interest rate. Ideally, you should have a good credit score or credit rating since the better your credit profile is, the better interest rates you can get.
You want to shorten the life of your loan. Say you took out a 30-year mortgage and are 15 years away from your retirement with 22 years’ worth of loan, you might not be looking forward to paying monthly payments while on a fixed and limited income. Most people want a home without a mortgage by retirement, therefore a short-term loan can help achieve this, despite having a steeper monthly payment.
You want to change the terms of your loan. Perhaps you’ve taken out an adjustable-rate mortgage that had a nice, low rate that stayed for five years. As the five years end and interest rates rise, you might not want to deal with mounting mortgage payments. So, you might consider refinancing to a fixed-rate mortgage, which can lead to higher initial payment than what you face now but it won’t rise anymore.
Quick steps to acquire refinancing
Find out your credit score. You must have an excellent or necessary credit to refinance your mortgage. If it falls short, acquire a copy of your credit report from the bank. This will allow you to decide how to best improve your score before trying to refinance.
Get in touch with a mortgage lender. Research many refinance the same way you did for your original mortgage. Go through mortgage companies, financial institutions or mortgage brokers to get the cheapest home loans possible. As you look around, don’t forget to thoroughly examine the lending institution and ask for any concerns you might have. The mark of a great lender is customer service.
Apply for the loan. Submit your loan application and provide any documents the lender needs. The most common items required during the mortgage process are pay stubs, bank statements, tax returns, W-2’s, and investment account statements. Plus, you’ll also need to decide when you wish to lock your interest rate.
The entire process can take a few weeks. If things go well, you can sign the completed loan documents quickly, after which the lender pays off the existing mortgage, and you’ll acquire your new mortgage. Best of luck!