If current mortgage rates are falling below your current loan rate, it might be time to think about refinancing your mortgage. Refinancing your mortgage involves similar steps to applying for your first mortgage.
After filing your application, you go through the underwriting process and then close the deal, just like you did on your first home loan. The only difference is where the money goes. With the mortgage on your home, you are essentially paying the seller. When you refinance your mortgage, the money helps pay off the balance of the old home loan.
The decision to refinance a mortgage depends on a variety of factors: how long you plan on living in your home, how much home equity you’ve accrued, what your financial goals are, and what your credit score is. Refinancing your mortgage has many benefits. Here are a few of them.
It Brings Down Your Monthly Payment
You can do this by refinancing into a loan with a lower interest rate.
You Can Tap Into Equity
If you are refinancing to borrow more than you owe on your current loan, the lender gives you the option of a cash-out refinance with a lower interest rate.
You Can Pay Off Your Loan Faster
If your mortgage on your home was a 30-year mortgage, refinancing may give you the option to change this into a 15-year mortgage with higher monthly payments, but lower interest rates over the loan period.
You Can Get Rid of The FHA Mortgage Insurance
While private mortgage insurance on conventional home loans can be canceled, you cannot cancel the insurance premiums on a Federal Housing Administration mortgage, unless you refinance the loan or sell the home. The timing here is crucial because you can only refinance once you have accumulated enough equity. Subtract your mortgage balance from an estimate of the value of your home to calculate your home equity.
You Can Switch from An Adjustable-Rate Mortgage to A Fixed-Rate Loan
With an adjustable-rate mortgage, your interest rates go up over time. If you prefer steady payments, refinancing your mortgage gives you the option of a fixed-rate loan, where the interest stays the same.
