Mortgage refinance is a popular way to pay off your existing home loan and take out a new one with better terms. Refinancing is especially important if your financial situation has changed in the time since you first took out the original mortgage.
Refinancing is also a common way to tap equity in your home, which you can use to make home improvements or for other major expenses. Refinancing is generally faster and easier than buying a home, but there are some things to consider before you jump into it.
Your credit score is a key factor in whether you can get approved for a refinance and the interest rate you’ll be offered. A good credit score of 700 or higher increases your chances of getting a better rate and lower payment.
Term length is another major factor in the interest rate you’ll be offered when refinancing your mortgage. Refinancing to a shorter term can save you money on interest, which can be significant. You can also refinance to a longer term, which can help you cut your monthly payments.
The interest rate you’ll be offered when refinancing depends on your current debt-to-income ratio and other factors. Usually, you’ll need at least a 20% down payment to qualify for the best rates.
Refinancing a mortgage can be a great way to lock in low rates and save on your monthly mortgage payments, but it’s important to shop around for the best rates available before you apply. If you’re unsure whether refinancing is right for you, check out our mortgage calculator to determine how much you could save.
Before applying for a mortgage refinance, you’ll need to prepare documents that the lender will use to assess your application. Be sure to have copies of your most recent income tax returns, any documentation relating to your employment and any other information you can provide about your current finances.
Once your mortgage application is approved, you’ll be asked to sign a contract to close the loan. The contract will include details about your loan, including the terms of your new loan and any closing costs you’ll incur.
You’ll need to provide a copy of your home’s appraisal, as well. The appraisal is a key part of the loan process, as it shows your lender how much value you have on your property. Be sure to clean up your home before the appraisal, so it looks its best.
Be sure to keep up with your current mortgage, as missed payments can negatively affect your credit rating. If you miss a payment, your lender might charge you a prepayment penalty that can add up to several hundred dollars.
It’s also a good idea to stay in your current home until the loan is completely paid off, or until you’ve reached the end of the loan term. This will give you a chance to see how the new mortgage works out before moving in, and you’ll be able to weigh your options before making a final decision.