There are many reasons that you might need to raise money from your home or change the terms of your home loan.
That’s why we’ve put together this guide on how to refinance your mortgage.
What Do We Mean By Refinancing A Mortgage?
Refinancing a mortgage simply means taking out a new home loan but one which repays the old mortgage in full as well as, potentially, releasing some equity, in the form of cash, for you.
How Does That Work?
The process is the same as the process you went through to get a mortgage in the first place.
You will go through a lender’s application process and, as long as you meet the lender’s requirements, you will go through the underwriting and closing processes just as you did when you bought your home.
Why Would Someone Want To Refinance Their Mortgage?
There are 5 main reasons that people refinance their mortgages:
- To reduce the payment amount each month. This can be achieved either through a lower interest rate loan or using a longer term to repay the debt.
- To release some equity from their home. This means getting some cash to spend as well as refinancing the home. It’s often called “cash-out” refinance.
- To pay back the mortgage faster. If you reduce the term of the mortgage you can pay it off faster and save money on interest payments, the downside is – payments usually go up to make this work.
- To change the rate from adjustable to fixed. Adjustable rate mortgages can see your payments increase over time, fixed-rate mortgages give you certainty as to what your payments will be.
- To dump FHA mortgage insurance. The only way to stop paying FHA mortgage insurance (on FHA loans) is to either sell the house or refinance the mortgage.
What Period Should The New Mortgage Cover?
You should think carefully about remortgaging with a new 30-year loan..
Sure, it will keep payments low but it also extends the time it will take to pay off your mortgage.
Talk to the lender and see if your new mortgage can run for the same term as the period left on your existing mortgage.
Using A Refinancing Calculator
The easiest way to determine how much a new mortgage will cost is to use a refinancing calculator.
You just put in the numbers and details and it provides you with the information about costs, terms, etc.
Shop Around Mortgage Rates Can Vary Dramatically
It is important to note that mortgage rates can vary massively between providers.
When you refinance, always shop around, you may get a better deal from another company rather than your original loan provider.
It is easy to get loan estimates online from a variety of providers and it’s free.
The Refinancing Process
If you want to refinance your mortgage the process for doing so is:
- Decide what you want from the new loan. Equity release? Reduce your loan term? Cut your payments? What do you want?
- Shop around for the best refinancing rates. Pay attention to the individual fee structures too.
- Apply for mortgages with up to 5 lenders simultaneously – do this all within a 2 week period to keep your credit score unscathed.
- Choose your lender. Get the loan estimates, compare them and pick the best one.
- Lock in an interest rate. When this is done, the lender agrees not to change the interest rate for a period of time while you both try to close your new mortgage.
- Close the loan. This means signing the loan contract and paying the closing costs.
And that’s it!
Your mortgage is refinanced when you complete step 6, simple, huh?
Final Thoughts On How To Refinance Your Mortgage
As you can see, it’s easy to refinance your mortgage.
All you need to do is to decide why you want to refinance your home and then follow our simple six-step process to get the job done.