A Step-By-Step Guide To Refinancing Your Mortgage
A Step-By-Step Guide To Refinancing Your Mortgage
With interest rates at their lowest in decades, refinancing your mortgage is a smart way to save on monthly payments and build equity faster. The process isn’t complicated, but it can be a little overwhelming if you don’t know where to start. To help you get started, here’s a step-by-step guide on how to refinance your home loan:
Work Out Your Finances
Before you begin the process of refinancing, you’ll want to work out your finances. This means getting a clear picture of your current financial situation and deciding how much money you need to borrow.
Here’s what you should do:
- Estimate your monthly income and expenses. Make a list of all of the money coming into your household each month from different sources—like paychecks or investments—and subtract that from all of the money going out for fixed expenses like rent or mortgage payments, grocery bills, phone bills, and loan payments (if applicable). The difference between these two numbers will give you an estimate of how much disposable income you have each month.
- Estimate how much you are able to save over time using our home equity debt consolidation refinance calculator!
Shop Around For Lenders
Your next step is to shop around for a lender and get multiple quotes. The lender that provides the best deal might not be the one closest to your house or workplace, so it’s worth making a short trip if you’re comparing different options.
Here are some things to look out for when comparing lenders:
- Interest rate
The interest rate will determine how much you will pay in interest over the life of the loan. If you choose a loan with a lower interest rate, you will save money on your monthly payments. However, if you choose a loan with a higher interest rate, you will end up paying more in interest over the life of the loan. As a result, it is important to shop around for the best interest rate when you are refinancing your mortgage.
- Fees and closing costs
These can add up, so it’s important to factor them into your decision. Some common fees include appraisal fees, loan origination fees, and title insurance. You may also be responsible for paying for a new home inspection and a home warranty. Closing costs can vary depending on the lender, so it’s important to compare options before making a decision. Keep in mind that refinancing can also extend the length of your loan, so you’ll need to factor that into your decision as well. Ultimately, the goal is to save money by lowering your interest rate and monthly payments.
- Mortgage term
The term is the length of time you have to repay the loan, and it can have a significant impact on the total cost of the loan. A shorter term will generally result in a lower interest rate, but it will also mean higher monthly payments. A longer term will lower your monthly payments, but you will pay more in interest over the life of the loan. As a result, it is important to choose a mortgage term that is right for your financial situation. If you are unsure about what term to choose, speak with a mortgage professional who can help you make the best decision for your needs.
Pick Your Loan Type And Term
When refinancing, you have the option of choosing between fixed and variable rate loans—or even a hybrid of the two. The key to making this decision is to evaluate what type of interest rate environment you expect over the life of your new mortgage, as well as your own risk tolerance and financial situation. If you think interest rates will rise in the future (and therefore want protection from rising payments), choose a fixed-rate loan with a longer term; if you think interest rates are going to fall (and want lower payments), choose a shorter-term adjustable rate mortgage or “ARM” (which has no initial cap on how far it can adjust).
Apply For The Loan
Once you have your credit report, please read it carefully and make sure there are no errors.
Once you’ve completed this preliminary step, you’ll need to apply for your mortgage refinance loan. As part of this process, provide all required documents—including proof of income and assets—and sign a contract specifying all terms of your new loan agreement. Ensure all fees are listed so that nothing catches you off guard later in the process.
If everything goes well during these steps, then congratulations: You’re ready for closing day!
Close The Deal And Pay Off The Old Mortgage
Closing is when you convert your old loan into a new one, complete with new terms and fees. If everything goes well, this can be done in one day (in fact, most of them happen within 24 hours). However, there are still some things that need to happen before then—and if any of these steps go wrong during the closing time (which sometimes happens), then there may be more delays than expected.