When you’re considering refinancing your home, you need a guide to help navigate this process. It starts with figuring out if home refinancing is a good idea. You’ll want to know where to start and how to work through the process.
Here’s our complete guide to home refinancing.
Where to Start with Home Refinancing
The first thing you want to do is figure out what you already have. You want to know the mortgage loan rate, balance, and term you’re working with right now. It’s also important to know if you have an adjustable-rate or a fixed-rate mortgage.
Along with understanding your current mortgage, you should map out your goals. Will you be using home refinancing to pay for remodeling your home? Will refinancing help you pay off debt?
Understanding your goals will help you get a better idea of whether home refinancing will benefit you or if there’s a different route.
Reasons for Refinancing Your Home
Sure, you have some goals you’d like to accomplish with home refinancing, but do you know your reasons for refinancing? It’s important to understand the reasons you want to refinance and make sure this financial decision is sound.
Some of the most common reasons for home refinancing include:
- Reduce Monthly Payment – This can be a bit tricky because you may end up with a lower payment, but you may be extending your mortgage term to get it.
- Use the Equity – Many homeowners refinancing to use the equity in their home to pay off debt, remodel, or for another reason.
- Pay Off Your Mortgage Faster – It might make sense to refinancing from a 30-year term to a 15-year loan if you want to pay off your mortgage faster.
- Get Rid of Private Mortgage Insurance – A common reason for home refinancing is to eliminate the expense of PMI.
- Lower Interest Rate – Usually, getting a lower interest rate through refinancing is a by-product and not the main reason for refinancing your home. However, it can help lower monthly payments and save you money.
There are many good reasons for refinancing your mortgage. Make sure you have a good reason or you may be wasting your time even considering refinancing.
Steps for Home Refinancing
Once you’ve evaluated your situation and decided you want to refinance your mortgage, there are specific steps you’ll take.
Step #1 – Gather Options
You’ll want to start by speaking with several different lenders to find out your options. Seeing the different options available will help you make an informed decision about home refinancing.
Step #2 – Gather Your Information
You’ll need to prove your income, have your credit run, and provide other documents to refinance your home. It’s a good idea to gather these documents before apply, so you can provide accurate information.
Step #3 – Shop the Lenders
It’s always smart to shop around. You don’t want to take the first good deal you find as someone else may offer a better deal. You also want to be able to compare all the costs from the interest rate to the closing costs for each of the lenders.
Step #4 – Sleep On It
Once you think you’ve found the right lender and you like the deal, ask questions, and then sleep on it. Make sure you get the answer to all your questions and then take at least one night to think about it before making a final decision.
Step #5 – Close
If you’re sure you’re ready to move forward, it’s time to sign documents and close on your new mortgage. You want to make sure you read over the documents to ensure it’s the deal you were promised.
Home refinancing gives you access to the equity in your home, can help you pay off your home sooner, and can even save you money. While it’s not always the right option, for many homeowners, refinancing offers helpful benefits. Just make sure you consider your decision and make the right choice for your needs.