How and Why to Refinance Your Mortgage

Mortgage refinancing lets you save money or tap equity. Set your home to refinance goal, then compare rates and fees.

Definition of mortgage refinance

A mortgage refinance can often occur as part of a loan repayment strategy, such as when you want to reduce the interest rate and monthly payments or increase your borrowing capacity. It can also be done for specific reasons like getting rid of FHA mortgage insurance or switching from an adjustable-rate loan to a fixed-rate loan.

We’ll explain some of the most important aspects of refinancing a mortgage and give you step-by-step instructions on how to follow the process.

How does refinancing work?

When you plan to buy a home, the seller is required to get a mortgage from you. The money goes to the seller, and if you want a new loan for the same property, then you can simply refinance with us. We provide all the flexibility of traditional mortgages that put your future in your hands.

When it comes to refinancing a mortgage, you’ll have the same underwriting process and go through the same closing procedure as you did when applying for the original loan.

Why and when you should refinance a home

Before you begin, consider the potential benefits of refinancing your home loan. Your goal will guide the process from the beginning.

• It’s possible to lower your monthly payments in a few ways. One way is to refinance into a loan with a lower interest rate. This can be done by changing the terms of the loan, say from 15 years to 30. There is one downside: you now have to pay more interest on the new loan.
• When a loan increases in value, it makes sense to take out more than the value of what’s already owed on the loan. The lender will give you a check for the difference when you do this. This is called a cash-out refinance and can be done at the same time as earning a lower interest rate.
• As of May 2019, a 15-year loan is the most popular option for home loans. Buying a shorter-term mortgage means you pay off your loan faster, which can help reduce the total cost. However, this also means that monthly payments will be higher on a 15-year mortgage than on a 30-year mortgage.
• FHA mortgage insurance does not cost much and can be canceled if you want to, but the Federal Housing Administration mortgage insurance premium paid on FHA loans cannot in most cases. The only way to get rid of FHA mortgage insurance is to sell the home or refinance the loan when you’ve learned how to prorate your mortgage so you’re not paying more than is required. To estimate your home value, subtract your current loan balance from your property value and multiply by 12% (or any other percentage that makes sense for you as a borrower).
• Switch from an adjustable-rate loan to a fixed-rate loan – the interest rates may go up or down over time, but you know what your payment will be for the next several years.

Refinance into another 30-year home loan?

Make your mortgage payment more manageable with a new, full-term refinancing. Reduce your monthly expenses and increase your payoff period to decrease the cost of interest over time.

Have you been looking for an alternative to traditional mortgages? If so, refinancing your existing loan into a home equity loan might be the answer. A home equity loan allows you to reduce the interest paid over the set term. You put in money at one rate and the lender pays off the outstanding balance at another rate. That’s mortgage amortization at work!

Use a mortgage Refinance calculator

It can be difficult to decide which mortgage is best for you. However, this isn’t something that should be left up to chance. A great way to do some preliminary research is by using a refinance calculator.

You’ll need to know (or make some educated guesses about) your new interest rate and loan amount.

With our mortgage calculator, we calculate your own retirement savings and the savings you’ll make while refinancing your home. The tool also gives projections of future monthly and lifetime income.

Our refinance calculator can show you how long it’ll take for your savings to surpass your closing costs. It also will show you what the actual monthly cost of your mortgage will be as well, without any extra fees.

With a mortgage calculator, you can get a good sense of what you should expect and how to compare the offers. With a few estimates from different lenders, you can enter the terms they offer into the calculator to help determine which one is best for you.

Shop the best refinance rates

Now for a little legwork — or more likely web work and phone calls. Getting your best refinance rate from each lender, who will need to provide you with a Loan Estimate within three days, doesn’t happen overnight. You’ll need to shop around in order to find the right lender for your interests.

The Loan Estimate is a document that prospective borrowers use to better understand a loan of the type they are interested in. It details costs, payments, and other important information needed for successful loan qualification.

Comparing loan details with these three lenders will give you a better idea of which one is best for you. There’s also a mortgage refinance calculator available to help you decide.

Refinancing a mortgage, step by step.

Looking to refinance your mortgage? Go ahead and take the first step!

1. Set your goal. Reduce monthly payments? Shorten the loan term? Get rid of FHA mortgage insurance?
2. Pull the best Mortgage Refinance Rate. Compare fees, too!
3. If you’re in a hurry to access a mortgage offer, then applying with three to five lenders is ideal. If you submit all applications within fourteen days, your credit score will be minimally impacted and you’ll have a better chance of securing the most competitive mortgage deal.
4. Compare different refinance offers. You’ll have a better idea of the amount you’ll need for closing costs when you look at the Loan Estimate that each lender sends after your application.
5. The interest rate is locked so it can’t be changed during a specified period. You’ll try to close the loan while the interest rate lock is in place.
6. When you’re refinancing(bumping) the loan, a lot of the closing costs on that type of loan will be put back on your old loan. You’ll pay those closing costs again in addition to new interest rates, fees, and charges.