Does dealing with your finances make your hands sweat like you are in the seventh grade going to your first school dance? Maybe you are thinking about refinancing your mortgage, but you aren’t sure of the best way to go about it. It may make you feel better to do a little bit of homework before you contact a mortgage professional. Read on to understand some of the basics of how to refinance your mortgage?
Before you contact a lender:
Know why you want to go through refinancing your home.
There are many reasons for refinancing a mortgage.
Take a look at the current mortgage interest rates and compare them with the rate you received when you first took out your original home loan. Is the rate now higher or lower? If it is lower now, you may want to take advantage of this and go through a refinance.
Was there a little blip on your credit report when you first took out a mortgage? Those blips matter, and having them gone could help you get a better interest rate.
Another reason to refinance is to consolidate all of your non-mortgage debt. Do you have considerable equity in your home? Do you need cash to consolidate debt or to finance a much-needed home remodel project? You might consider refinancing with a cash-out. Here’s how it works:
Consider how one lender helped Mary in Denver with her debt-consolidation strategy. At the time of the refinance, Mary’s home was valued at $250,000, and she had $96,268 equity in her home. She also had $35,932 in non-mortgage debt. She was borrowing at about 21%. Mary has qualified for cash-back refinance. Her mortgage payment went up by $320 a month, but her non-mortgage debt payment decreased by $882 a month. Mary saved $562* a month by going through with a cash-out mortgage refinance.
Use a mortgage refinance calculator.
An online mortgage refinance calculator is a handy tool to see how much you can save by refinancing your home. For additional savings, you might look into how much you could save by using discount points when you refinance. Buying points is a popular strategy to reduce the interest rate of your mortgage.
There are many free mortgage refinance calculators are available for you online. Just follow the on-screen instructions. Fill in the information on your current loan, then fill in the refinance loan details along with information on your home. Compare your current mortgage with the mortgage after the refinance. You will see how much you could save each month by refinancing. If any of the calculations are confusing, you can reach out to a mortgage professional for help.
Shop around for the best refinance rates.
Check out multiple lenders in your search for mortgage refinancing options. Look online to see where you can receive the best rates. Talk with lenders to get a feel for working with the company. Look at customer satisfaction reports as well to make sure you are dealing with a reputable firm.
Once you have done your research, you should know what refinance rates are available to you.
Determine your goal.
Do you want to retire in a few years and want to own your home free and clear? Do you want to consolidate non-mortgage debt by refinancing with a cash-out mortgage? Do you want to change loan term from 30 to 15-years to shorten the life of your mortgage? Regardless of your reason, it’s good to have an idea before you contact a mortgage professional.
Check your credit.
There are many reasons to check your credit. One of the best reasons is to make sure that there are no surprises before you start with the mortgage refinance. Check your credit before you contact a mortgage company to avoid any surprises. In case you found anything out of the ordinary, contact the credit bureaus and get it cleaned up before you start with the refinance.
Check the value of your home.
Get an idea of the current value of your home. You don’t need to hire a professional appraiser yet. Once you start the refinance process, the lender might ask you to use a specific appraisal firm to use for the appraisal.
Shop around for the best mortgage deals.
In addition to looking for the best interest rates, also look at the closing costs and fees for each lender. Consider all costs of the refinance before you make a decision.
Get your paperwork together.
Ask your lender what documents they need from you. Each lender may require their own set of documents, but some of the most common documents are pay stubs, banking details, savings accounts, tax returns, outstanding loans and debts, W-2s, and or 1099. If you have gone through a pre-approval, you might have most of the necessary documents handy already.
Have cash on hand.
Even though refinancing makes sense for many homeowners, it is not free. You normally have to pay for an appraisal. There are closing costs with a refinance. The exact cost depends on a wide range of factors. Check with your lender to understand all expenses with the refinance.
After reading the information in this article, hopefully, you are more comfortable with the home refinance process. Talk with a mortgage professional to understand the details of refinancing your home.