Refinancing your mortgage is a popular way to secure lower rates or take out extra cash for home improvements. In addition to lowering interest rates, refinancing can offer other financial benefits such as eliminating private mortgage insurance (PMI), accessing equity, reducing your monthly payment and changing loan terms.
If youre considering a mortgage refinance, its important to know the steps and what to expect along the way. These steps include getting pre-qualified, shopping lenders, applying for your new loan and closing on your refinance.
Before you begin the process, make sure to determine your goals and how this will help you meet them. These goals might include tapping the equity in your home for home improvement projects or refinancing to pay off high-interest debt, such as credit cards.
In order to get the best possible rate, its best to shop around and compare multiple lender offers. This may take longer than if you worked with your current lender, but it can save you thousands of dollars over the life of the mortgage.
Be sure to review each lenders fees, including application, origination and appraisal fees. This will help you determine which lenders are more affordable and which ones are a better fit for your specific needs.
Your credit history is also an important consideration when shopping for a refinance. Errors on your credit report can increase the interest rates you get on a mortgage and the amount you have to pay in monthly payments. So its a good idea to check your credit reports for errors before you start the refinance process and remove any that you find.
During the shopping process, be sure to request your credit reports from all three major credit reporting bureaus — Equifax, TransUnion and Experian. This will help ensure that all of your credit scores are accurate and up to date.
Once youve gathered all of your credit information, contact the lenders youre interested in and ask for a loan estimate. This will give you a breakdown of the closing costs and fees associated with each refinance loan. You should also be able to find the exact terms and interest rates that each lender offers.
The mortgage refinance process can take anywhere from a few days to a month, depending on your specific situation and the type of loan(s) involved. Be sure to plan your timeline accordingly so that you have time to shop, apply and close on the refinance.
Be sure to compare your loan options with at least three lenders, so you can be certain that youre getting the best deal for your needs. Several lenders will provide loan estimates for free, so dont be afraid to collect them.
Refinancing wont be a good choice if the upfront costs exceed what youll save in monthly savings over the course of the loan. It also doesnt make sense if you plan to move soon after refinancing.
In fact, many homeowners have refinanced only to find that the savings from the lower monthly payments dont offset the costs of closing on the refinance and wont pay off their debt in the long run.