Refinancing 101

Answer 1

Many consumers trade in their existing mortgage for another one, which is called refinancing. The main reason for refinancing is to save money. Rates probably have dropped since you purchased your home, and replacing your previous mortgage with one at current rates, will save you money in the long run.

Should You Refinance?

The first step is deciding what is your reason for refinancing. Many homeowners refinance because of home improvements, debt consolidations, or even shortening the term of their loan. You should have valid reasons for refinancing your home because, although it can be beneficial, it is not always the best decision for everyone.

Compare Rates

The next step is to calculate how much you will save by refinancing. Compare your previous interest rate to the current rates in order to determine how much you will save. If you are almost done paying off your mortgage, it is not wise to refinance. This will only extend your payments and loan length, costing you more money.

What is the Best Option?

The third step is to decide which refinancing option fits your situation best. You can chose between an adjustable rate mortgage and a fixed rate mortgage. Also, you should determine how long you want your terms to be on the loan. This should best fit your financial goals.

Start shopping around for your lender. Contact at least three lenders to weigh your options correctly. Provide them with your financial information, which includes your income, debts and savings. This information will allow them to give you an estimate of the refinancing options they can offer you.

Compare the estimates to decide which one best fits you. Find out about appraisal fees, closing costs and other expenses that you may not be aware of. Make sure that these costs will not deplete your savings, if you decide to refinance.

Fill Out the Application

Next, fill out the refinancing application. This application will inform you whether or not you qualify for the refinancing of your home. After you are approved, it is best to get your home appraised so the lender will know how much your home is worth. You and the lender should be working towards a finalized interest rate.

Loan Funding

Last, before you can get the documents finalized and notarized, the lender will ask you to present multiple financial records, as you did with your first mortgage. These documents can include the home’s deed, copy of insurance policy, pay stubs from previous months, and a copy of other open loan accounts or credits. If you are refinancing with your current lender, the company may be willing to approve your loan with less steps and paperwork involved.