Definition of mortgage refinance
If you’re looking to save money, maximize your home’s equity or switch over from an adjustable-rate loan to a fixed one, refinancing your mortgage can be the answer. Refinancing involves replacing your current loan with a new loan at a lower interest rate and/or different terms – all of which may result in lower monthly payments and less time spent paying off the debt. Additionally, homeowners with FHA loans may find that they are able to get rid of their mortgage insurance when they refinance.
Before we explore the step by step process of refinancing a mortgage, let’s first consider some key aspects that should be taken into account.
How does refinancing work?
Investing in a home is an exciting experience, and usually begins with obtaining a mortgage from the lender. This money goes to the seller of the house when you purchase it; however, if you decide to refinance your home later on, instead of paying off the original owner, this new loan amount pays off any remaining balance left on your old one.
If you’re looking to refinance your mortgage, it’s important to be aware that the loan qualification process is similar to when you initially applied for a home loan. You’ll need to submit an application and go through an underwriting procedure before reaching the closing stage – so make sure all of your paperwork is in order!
Why and when you should refinance a home
Before you start the mortgage refinancing journey, carefully assess your motivations for doing so. These aims will serve as a compass throughout the entire process – helping keep you on track and focused on your goal.
- Reduce the monthly payment – To save money on your monthly payments, refinancing into a loan with a lower interest rate is an excellent option. Another feasible option to reducing the payment amount is by extending the loan term- for example from 15 years to 30. However, this will result in having to pay more interest overall in the long run.
- Tap into equity – Refinancing can be a great way to access extra cash in addition to receiving a lower interest rate. When you refinance and borrow more than your current loan balance, the lender will provide you with funds for the difference – this is known as a “cash-out” refinance. This strategy allows people to get both benefits at once!.
- Pay off the loan faster – By refinancing your 30-year mortgage into a 15-year loan, you can significantly reduce the total interest paid over the life of the loan while halving its duration.
A Simple Step-By-Step Refinancing Guide
Here’s is the simple step by step process of refinancing your home mortgage:
- Define your goal – Would you like to reduce your monthly payments or reduce the term of your loan?
- Apply for a mortgage with lender – When you first submit a credit check to a lender, your score may decrease by as little as five points according to FICO. Further inquiries indicate that you are rate-shopping and should not have any more of an impact on your credit score. Therefore, it’s best to make all applications within two weeks in order to minimize the effect on your rating.
- Secure your interest rate – Securing a fixed interest rate ensures that it will remain the same throughout the specified period, prompting you and your lender to work together in order to close the loan before its expiration date.
- The last step, close on the loan – This is when you’ll cover those closing expenses that were listed in the Loan Estimate and also reflected on your Closing Disclosure. Refinancing a loan resembles buying one, with only one distinction: nobody will give you keys to your home at the end of it all.
If you’re ready to learn more about mortgage refinancing options, Sword Mortgage is ready to help
At Sword Mortgage, we believe that an informed customer is the best kind of customer. Our loan officers will take the time to fully explain your options and help you understand all aspects of your unique situation before making a decision. Call 770-826-0222 to speak to a mortgage professional or get started on your loan application process today.
