If you are a homeowner and are wondering how to refinance your mortgage, now is the time to explore loan options. Since the interest rate is low, you can get an excellent deal. Refinancing your mortgage takes some time and money, so make sure you do your due diligence on types of available mortgage financing agreements, including the cost of refinancing, before submitting applications (your savings account will appreciate that).
Here are the steps you can expect to take when refinancing your mortgage:
- Step 1: Determine the value of your property
- Step 2: Compare refinancing rates from multiple lenders
- Step 3: Deciding on a refinance is a good option for you
- Step 4: Collect required documents
- Step 5: Review your loan estimate
Step 1: Determine the value of your property
Here’s what you need to do before applying for a mortgage refinance.
- Make sure you have equity in your home: Capital is the amount you would have after what you owe on your mortgage if you immediately sold the property. Some mortgage lenders do not consider refinancing unless you have at least 20% equity in your home. Here is everything you need to know equity and refinancing.
- Check your loan-to-value ratio: When considering an application for a mortgage refinance, mortgage lenders look at the mortgage lending rate (LTV) or how much the borrower owes in relation to how much the property is worth. Most lenders want an LTV below 80% because it is considered a lower risk for them. To determine your LTV, divide the amount you owe your home by the value of the property. For example: If you owe $ 300,000 on your home and your property is valued at $ 400,000, LTV is 0.75 (or 75%).
If you have already taken these steps, you can start a startup comparison of mortgage lenders and offers now through credible.
Step 2: Compare refinancing rates from multiple lenders
A refinancing of the home is not free. As you replace your old mortgage with a new loan, you are responsible for many of the same fees that you paid during your initial closure, including an application fee, fees for origin loans, an appraisal fee, and closing costs.
Loan rates vary depending on the lender. If you want to spend thousands of dollars refinancing your mortgage, take the time to do so shop around on a platform like Credible to compare loan rates without affecting your credit score. Credible allows users to compare pre-qualified refinancing rates from the major mortgage lenders. Unlike other sites, Credible provides accurate lender information and transparency regarding lender fees and additional borrowing costs.
Put your information directly into Credible’s free online tool now to compare interest rates and see your borrowing options.
Step 3: Deciding on a refinance is a good option for you
Once you have looked at the value of your property and considered rates from multiple lenders, it is time to examine the reasons for refinancing and whether it makes sense to you.
When a refinancing can be a good option
Some situations that could indicate when you need to refinance your mortgage include:
- You plan to stay at home for at least another five years.
- You can score at least one full percentage point lower than your current interest rate.
- You can lower your monthly payment or save on the total interest paid during the term of the loan.
- You have a clean credit report and can qualify for lower rates.
Living in a home longer allows you to maximize the benefits of your lower interest rate and your overall savings by reducing your mortgage rate by at least 1%.
When refinancing may not make sense
Some situations that may indicate when you should not refinance your mortgage include:
- You plan to leave your home in less than five years.
- You have bad credit and a bad credit history.
- You can not afford closing costs and other fees.
You need to make sure that you do not spend more money than you would save. This may be the case if you leave a property before covering the cost of borrowing in savings.
Credible can too help you decide if now is the time to refinance your mortgage.
If you are considering refinancing a mortgage or evaluating loan options, use one online mortgage calculator. Consider the cost of your refinancing, the amount you save per. Month and how long it takes you to recover the money you put into your refinancing. Using a mortgage financing calculator should tell you if you are saving money by refinancing.
Step 4: Collect required documents
When you decide to proceed with your refinancing, you need to collect all your required forms. Be sure to keep them handy if your lender needs additional copies. Paperwork you need to have on hand includes:
- Proof of income and employment
- Tax returns for the last two years
- List of assets
- Copy of your current loan
- Debt statements
- Assessment information
Your lender may require additional documentation. Send all documentation together to speed up the approval process.
Step 5: Review your loan estimate
When your lender approves your application, they send a loan estimate and final publication. The documents describe your loan terms, repayment terms and fees. Review the information to make sure the papers match.
These documents are short and straightforward. Keep track of your expected monthly payment, closing costs, fees, and whether your new loan includes a prepayment penalty.
Review your final disclosure carefully. This document describes all the final numbers in your loan. If you see an error, or if you have questions about a fee, a fee or another aspect of the loan, now is the time to resolve the issue. Once you have signed the document, the lender issues your refinancing and you are on your way to saving money.
How much it costs to refinance
When you refinance your home loan, your current loan is replaced by a new one. The new loan may include closing costs and other fees.
Common refinancing fees include:
- Registration fee
- Origin fee
- Inspection fee
- Fee for home assessments
That fee for origin loan can be up to 1.5% of your total loan. ($ 5,250 on a $ 350,000 loan). You want to include about $ 400 for an assessment and $ 500 for a home inspection. Your lender can also charge a title search and an insurance fee that can cost up to $ 900.
How to get the best refinancing rate
Several things affect your mortgage refinancing rate. Some things you can do to get lower prices include:
- Have a credit score of at least 700
- Reduce the balance on your credit cards or other loans
- Consider refinancing for a shorter loan
- Apply for refinancing if you have an LTV below 80%
- Compare prices from multiple lenders to find
Benefits of refinancing your mortgage
While refinancing a mortgage involves additional costs, there are many benefits to taking the time to apply with your lender. Some important benefits include:
- Lower your monthly payment
- Reducing your interest rate
- Ability to pay for your home faster
- Ability to remove your private mortgage insurance
- Access to funds from the equity in your home
If you think it’s time to refinance your mortgage, run the numbers and Compare rates from multiple mortgage lenders via Credible. Having all the information, including lender fees and other costs, will help you decide if a refinancing will help you reach your financial goals.
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