When you bought your home, you probably had a lot of questions about the mortgage process and financing your home. Now that it’s been a few years, you likely haven’t given it a lot of thought. However, the lower interest rates fall, the more you may want to consider refinancing your mortgage. A mortgage refinance is the process of taking out a new loan to pay off your original mortgage.
The process of refinancing your mortgage is similar to acquiring one in the first place. You should begin by shopping rates and comparing what different lenders have to offer, as well as how these variables compare to your existing loan. Just like your first mortgage, refinances do have closing costs. So, it’s essential to evaluate the breakeven point of the refinance and at what point these savings will be greater than the cost. For example, if closing costs are $4,000 and you’re saving $150 each month, you’ll need to stay in your home for at least 26 months to breakeven.
Reasons to Refinance Your Mortgage
There are many reasons why you may want to refinance your mortgage. Lowering the interest rate is typically the top reason. A lower interest rate means lower monthly payments. A refinance also allows you to change the term of your loan from a 30-year to a 20 or 15-year mortgage. While lowering your mortgage term will increase your monthly payment, it also shortens the amount of time you will be making these payments. A refinance may also allow you to access the equity you’ve built in cash, through a cash-out refinance.
Types of Mortgage Refinancing
There are three different types of mortgage refinance loans.
- Rate & Term Refinance – This type of refinancing allows you to change your rate, your term, or both. In this instance, the amount of the loan remains the same. This option allows you to save money monthly or switch from an ARM to a fixed-rate mortgage.
- Cash-Out Refinance – A cash-out refinance lets you access a portion of your home’s equity in cash. In this case, the amount of the new loan will be higher than the balance on your original mortgage.
- Cash-In Refinance – A cash-in refinance, while less common, is when you bring an additional down payment to reduce the balance of the new mortgage. This option can help you avoid PMI and earn an even lower interest rate.
Qualifying for a Mortgage Refinance
Qualifying for a refinance is similar to qualifying for your original mortgage. Your lender will consider multiple financial factors, including: payment history on your current loan, credit history and score, income, your home’s equity and value, and other debts.
If you’ve been thinking about refinancing your mortgage, the expert staff at Standard Mortgage (NMLS#: 44912) is here to help. For over 90 years, Standard Mortgage has been helping homeowners find the mortgage solutions they need.
