What Is Involved With Refinancing a Mortgage? A Quick Guide
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Originally Posted On: https://forbesblog.org/what-is-involved-with-refinancing-a-mortgage-a-quick-guide/
Have you been thinking about refinancing a mortgage loan for a few months now? If you have, now would be pretty much the perfect time to do it.
Mortgage rates have hit historic lows this year. As a result, it would make all the sense in the world for you to go through the mortgage refinancing process.
So, what is involved with refinancing a mortgage? Well, that’s something that you should figure out before you kickstart the process.
We’ve created a mortgage refinancing guide for you filled with mortgage refinancing advice that should help you get things started. Check it out below and put the mortgage refinancing tips included in it to the test. They might be able to save you a nice chunk of change as you move forward.
Begin by Seeing What Your Current Mortgage Rate Is
First things first: Before you even think about refinancing a mortgage loan, you should take a look at what your mortgage rate is at the moment. You aren’t going to need to go through the refinancing process if your mortgage rate is already on the lower side.
Generally speaking, most financial experts will tell you that you should only refinance a mortgage loan if you’re going to be able to get a mortgage rate that is at least 1 percentage point lower than the rate you have now. Refinancing a mortgage could actually end up costing you money if you aren’t able to lower your mortgage rate that much.
Shop Around for a Better Mortgage Rate Than the One You Have Now
If you discover that you have a mortgage rate that’s on the higher side and you want to refinance it, the next thing you’ll need to do is shop around for a better mortgage rate. These days, it’s very easy to compare the mortgage rates offered by different lenders online.
You should search for companies that can help you refinance home loans and see what kind of rates they would be willing to offer to you. You might be surprised to see just how low some of their rates are right now.
Get Preapproved for a Mortgage Refinancing Loan
Once you find a lender that is willing to extend a very low-interest rate to you on a mortgage refinancing loan, you should try to get preapproved for it. You can usually do this right on your computer in a matter of just minutes.
A lender will ask you a series of questions, such as how much you still owe on your mortgage, how much you make each year, and more. It’ll provide them with the information that they’ll need to preapprove you for a mortgage refinancing loan pretty much on the spot.
If you are preapproved, they’ll then reach out to you directly to walk you through the mortgage refinancing process. They can also answer the question, “What is involved with refinancing a mortgage?”, for you.
Decide Which Kind of Mortgage Refinancing Loan You Want to Take Out
When you touch base with a lender about obtaining a mortgage refinancing loan, they’re going to inquire as to what kind of loan you want to apply for. There are several types of mortgage refinancing loans available to you.
Some of your options will be:
- A rate-and-term refinance loan, which will change the interest rate and/or loan term on your existing mortgage without altering the balance owed on it
- A cash-out refinance loan, which will provide you with an opportunity to get your hands on some of the equity that you’ve built up in your home
- A cash-in refinance loan, which will allow you to pay money to bring the balance of your mortgage down
Most people choose to go with one of the first two options that we just mentioned. But you can pick any of these options based on your specific needs.
Make Sure That You Qualify for a Mortgage Refinancing Loan
Since you were already preapproved for a mortgage refinancing loan, you may be under the impression that you’re automatically going to qualify for a loan. But this is the part of the process when things get a little bit more intense.
A lender is going to want to do some digging into your finances to make sure that you’re in a position to refinance a loan. They are, after all, going to be taking a chance on you by providing you with a mortgage refinancing loan.
A lender will want to see what your credit score is, look at the payment history on your existing mortgage loan, and find out what your home is worth. They’ll use all the information that they’re able to gather to determine if you qualify for a mortgage refinancing loan.
As long as everything checks out, a lender should then approve you for a mortgage refinancing loan in the end.
Close on a Mortgage Refinancing Loan and Begin Paying It Back
When you first bought your house, you had to go through what is called a closing. This is when you officially took ownership of your home after agreeing to purchase it.
You’ll need to do the same thing when you take out a mortgage refinancing loan. You will essentially be buying your own house again with a different loan, so you’ll need to close on it.
There could very well be some closing costs associated with this. You should check on this early on in the refinancing process. You might have to pay these closing costs on the day you close, or you might be able to wrap them up into your refinanced loan so that you can pay them off slowly over time.
After you’re all done closing on your mortgage refinancing loan, the only thing left to do will be to start repaying this loan within a month or two. You’ll love having a lower mortgage rate and will save so much money over the years.
Now That You Know What Is Involved With Refinancing a Mortgage, Give It a Try
Some people get scared when they hear about what is involved with refinancing a mortgage. They think that it’s going to be too difficult to refinance their mortgage.
It is going to take a decent amount of work on your part. But you could save yourself tens of thousands of dollars and sometimes even hundreds of thousands of dollars by going through the mortgage refinancing process. It would be well worth exploring it as an option.
Learn more about how to refinance a mortgage by checking out the other informative real estate articles on our blog.