Refinancing your mortgage has many benefits. It can be an excellent way to lower your monthly payments, lock in a fixed rate for the duration of your mortgage loan and shorten the length of your loan term. Refinancing can also provide other perks, like cash out or bringing new equity into a second home or rental property. And it can all be done with little to no cost and minimal effort if you know what you’re doing.
There are so many different ways you can refinance your mortgage. Each lender is different, their requirements vary and there are numerous pros and cons to consider before signing on the dotted line. To help make things easier for you, we have compiled this detailed guide to getting a mortgage refinance with advice from industry experts
What Is Mortgage Refinancing?
When you refinance your mortgage, you get a new loan to replace your old one. If you can refinance into a loan with a lower interest rate than you currently have, you may be able to save money on your monthly payment and interest throughout the life of the loan. You may also be able to benefit from a cash-out refinance, which allows you to use your home equity as a low-interest loan.
How To Refinance Your Mortgage
1. Have a Clear Financial Goal
Of course, there should be a good reason why you want to refinance your mortgage. Is it to reduce your monthly payment, shorten your loan term, or pull out equity for home improvement or debt repayment?
2. Check Your Credit History
You need to qualify for a refinance just as you needed to qualify for your original mortgage. Requirements are less strict when you’re applying for an alternative mortgage. Private mortgage lenders are more interested in the equity in your home rather than your credit score or proof of income.
When applying with a bank or credit union on the other hand, if you have a poor score, you should spend a few months boosting your score before you refinance your mortgage. One way to do this is by paying your bills on time.
3. Figure Out How Much Home Equity You Have
Home equity is the total value of a home minus what the homeowner owes on their mortgage. To determine your home equity, you need to check your mortgage statement to see your current balance and then talk to a real estate agent to run an analysis to figure out the current value of your home. The home equity of your home is the difference between the two. For instance, if you still owe $300,000 on your home and it is worth $365,000, your home equity would be $65,000.
4. Get Quotes From Various Lenders
It is advisable to get quotes from at least three different mortgage lenders. Check offers from banks and credit unions, but also from the best private lenders, This can save you thousands of cash. Once you have picked your ideal lender, discuss when it is time to lock in your rate so that you don’t have to worry about the rates shooting before your loan closes. What’s more, you need to pay attention to the cost of fees.
5. Have All The Paperwork Ready
Gather all the paperwork you need for refinancing your mortgage, such as federal tax returns, stubs, bank statements, etc. In addition, your lender will take a look at your credit as well as net worth. That’s why you need to disclose your assets and liabilities in advance.
These are the most important factors to keep in mind when trying to get a refinance. If you keep these tips in mind and do your research, you will increase your chances of getting a lower rate and save money on your mortgage.