What Mortgage Refinancing Is and Is It Right for You?

what mortgage refinancing is

The term “mortgage refinancing” does not have to be intimidating.  It’s exciting as a mortgage refinance can both save you money and potentially speed up the time to when you fully own your home.  And that is what this post is about.

Below you’ll learn everything from what mortgage refinancing is to when it is a good idea to refinance your mortgage.

What is Mortgage Refinancing?

Mortgage refinancing is when a homeowner trades in their current mortgage for a newer one because there will be a lower interest rate.  By doing this the borrower will save more money in the long run, even if they restart their loan payback period.  The benefit to the lender is they get a trusted source of payments over a longer time vs. having the mortgage end sooner.  And there are a ton of reasons to consider a mortgage refinance if the rates are low.

Reasons to refinance a mortgage include:

  • Reducing your monthly mortgage interest payments to lower your total monthly cost
  • You can shorten the length of your loan
    • i.e. Go from a 30 year to 15 year with an equal or lower rate
  • Changing your loan from an adjustable rate to a fixed rate so it never increases on you again
  • You can take cash out from the equity to pay for other expenses like medical bills or credit card debt
  • To cancel mortgage insurance premiums (PMI)

If it sounds like a mortgage refinance is right for you, here’s how the process works so you can help ensure a seamless refinance.

The five step process for refinancing a mortgage are:

  1. Review the different types of refinance loans to find the option that works best for you and apply.  
  2. Submit your application and the lender will verifies your financial information and credentials.
  3. Once the application is verified and approved you may be given the option to lock in your interest rate for 15 to 60 days so it doesn’t change before you close on the new loan. 
  4. Now the lender does the verification and paperwork including:
    1. Running an appraisal to verify your house’s value is equal to or higher than the loan amount you want.
      1. If your house appraises at a lower value you can cancel the refinance or apply for a different amount.
    2. Underwriting to legalize your mortgage refinance.  
  5. Last you go to the closing table and sign the mortgage refinance documents.

A few days before closing you should get a document called the closing disclosure which tells you all the final numbers for your loan.  Your closing is usually only attended by the people on the loan and title, and a representative from the lender or title company.  At the closing, you’ll go over the details of the loan, sign your loan documents, and pay any closing costs that aren’t already rolled into your loan. And now you’re probably wondering how much it will cost to refinance your mortgage.

On average the cost to refinance a mortgage is between 2–6% of the total value of your loan. On a $300,000 mortgage, your closing costs will be between $6,000 and $18,000. 

Mortgage refinancing makes your mortgage and the equity you have in your home work for you.  You can refinance a mortgage to have cash to spend, lower your monthly payments to increase your cashflow, or reduce the payback period so you can become a homeowner more quickly.

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