From lowering your interest rate, to consolidating debt, or getting the cash you need to invest in a new business venture, there are a number of things that refinancing your mortgage can help you with. But before you decide if this is an option that is right for you, you need to first understand what a mortgage refinance actually is.
What is a Mortgage Refinance?
In the very simplest of terms, refinancing your mortgage means to break your existing mortgage and replace it with a new one.
Your new mortgage may have a lower interest rate than your previous one, or it could incorporate different terms or it could even be for a higher amount so you can access cash from your home equity. There are many reasons my customers could decide to refinance a mortgage, including
- Getting a lower interest rate
- To shorten the term of their mortgage, or own their home sooner
- To convert from a variable to a fixed rate mortgage, or vice versa
- You want to change lenders.
- To use some of the equity they have built into their home to pay off consumer debt or help pay for an emergency or large expense.
Refinancing your mortgage can be a detailed process, though, so it’s important to understand if this is the right decision for you based on your current financial situation.
Steps to a Mortgage Refinance
When you decide to refinance, there will be steps to go through that were likely similar to when you applied for your original mortgage.
- Appraisal on your home
- Title search to make sure there aren’t any outstanding liens
- Application fee
- Between 2 and 5% of the loan’s principal due at signing
- Pay applicable fees/penalties for breaking your current mortgage
When Should You Consider Refinancing?
When interest rates drop by a significant amount or you have an overwhelming amount of consumer debt, refinancing can make a lot of sense and the upfront costs are often outweighed by the amount you will ultimately save.
Additionally, if you have a variable rate mortgage and the rates start to rise it can be the right time to lock into a fixed rate mortgage so you aren’t subjected to the uncertainty of where rates will go.
So, when is it worth it to refinance? Well it depends on a variety of factors really: how much is left owing on your current mortgage, how much of a savings you might get and what your financial situation is like.
In some cases, the 2% to 5% due on the principal of the loan can be absorbed into the refinancing cost so you don’t have to come up with that money upfront. This can be especially helpful if you’re trying to pay off consumer debt and finances are tight to begin with.
If you’re considering refinancing because you need to pay off debt, this can be very helpful for you. Most mortgage rates are below 5% right now and consumer debt could be as high as 28% interest. If you have a lot of debt, rolling it into your mortgage gives you the opportunity to pay it off at a lower rate.
If you aren’t looking to pay off consumer debt, another benefit of refinancing your mortgage is the rate at which you’re building equity in your home. If your primary reason for refinancing is to get a lower rate then this will definitely help save you money every month, but with a lower interest rate more of your payment goes towards the principal so you build equity quicker. This may not be helpful now, but could be important if you need to access the equity in the future.
If you’re looking to take advantage of lower interest rates, and you’re comfortable with your monthly payments then this can also work to your advantage. With lower interest rates you might have the option to shorten the term on your mortgage, which means you will own your home sooner.
Refinancing your mortgage can be a great financial move for you and your family, especially if it helps reduce your monthly mortgage cost or even allows you to pay off your mortgage sooner but that doesn’t mean it’s right for everyone.
We will work with you to help you determine what the best financial option is for you, and figure out what works for you. With our extensive experience in the mortgage industry we will make sure you get the best advice and we explore all your financial options together.
Mortgage Refinance FAQ's
Many of the factors in refinancing are based upon your unique situation, so there isn’t a cut off for how much equity is needed. We can work with you to determine what the options are.
We work with clients of all financial situations and we can help you determine if refinancing is the best option for your unique financial situation.
Yes! We work with lenders from across the country and can help you refinance with your current lender or a new one depending on your personal preference and what option will be most advantageous for you.