Refinancing is something to consider when it comes to your mortgage as a homeowner. Based on a certain survey, people who refinanced in 2021 now save about 2,800 dollars on their mortgage payments yearly.
If you are considering this option, then you need to know some very important things, from its workings, down to how to go about it, and also the types. These important things about refinancing are what we will be discussing in this article. But first, what do we even mean by refinancing?
What Does Refinancing Mean?
Refinancing your mortgage means using another loan to replace the present mortgage. Your new loan may come with different terms like going from a thirty-year term down to 15 years. You can also switch from fixed rates to adjustable rates. However, a reduced interest rate is often one of the changes made.
With refinancing, you can reduce the monthly payment, pay off the mortgage quicker, save money, and get financing from your house’s equity when you need money. When you want to go for this, you should ensure you refinance at a low interest rate or refinansiering lav rente in Norwegian.
How Does It Work?
When you want to refinance, the process will be similar to the first time you applied for and got your mortgage. First, a lender would check your finances so they can properly evaluate the risk level and eligibility.
Since the loan is new, you can choose to use another lender instead of the lender you used to purchase your home in the first place.
Getting the new loan can help you reset your repayment clock. For instance, let’s assume you currently have a thirty-year mortgage and you’ve been making payments for 5 years now. This would mean you have just 25 years to complete the repayment.
Now, if you choose to refinance your mortgage to a thirty-year loan, your repayment clock will be reset back to 30 years. Also, you can pay off the loan earlier by using a twenty-year loan to replace the current thirty-year loan.
You would have to pay closing costs if you choose to refinance. This may make this choice less financially wise based on your financial capacity. The closing cost could be between two and five percent of your total refinancing amount. Closing costs typically include the origination fee, appraisal fee, and discount points.
Mortgage Refinance – How to Go About It
Below is a guide on how to go about mortgage refinance:
Step 1 – Preparation
Before you get into it at all, you need to make your calculations and evaluate your financial situation so you would know if it would be a wise financial move. Find out the duration you would need to pay off the refinancing costs.
Some things you need to check include:
- Your credit. Ensure it is good enough to make you eligible for the new loan.
- Ensure your home equity is enough (at least twenty percent).
- Ensure your new payment properly fits your budget.
- Find out available interest rates.
Step 2 – Check for Lenders
As we already said, you don’t necessarily need to get the new currency from the same lender you received the initial mortgage from. If you want to use another lender, then you need to shop around for one, this is one way to ensure the deal you get is a fair one.
Look for about two or even three lenders and compare their offers. This means you may need to evaluate the preapproval procedure a couple of times. The good thing about this even if your credit is checked multiple times in a little period, the inquiries won’t reflect in your score.
Step 3 – Compare Loan Terms and Rate Quotes
Once you have narrowed the offers down, you now have to evaluate them. One important thing to consider as you make your comparison is interest rates. However, closing costs, as well as other terms, should also be properly considered.
For instance, if an offer will charge for early repayment, then it means you would pay extra if you choose to refinance later on. Also, if you aren’t charged the origination fee, then you most likely would have reduced closing costs.
Step 4 – Apply
When you decide on one offer, then you would have to fill your mortgage application. You can visit https://www.investopedia.com/terms/m/mortgage-application.asp here to learn more about mortgage applications.
You would also need to bring the required documents and this would include tax returns, bank statements, and pay stubs. The lender would carefully evaluate your financial situation and credit. You may be asked some questions during this evaluation. Ensure you are prepared to give proper answers to the questions that will be asked. Providing these answers on time will ensure that the procedure is kept on track.
Step 5 – Lock the Interest Rate
You may be allowed to lock the interest rate. When you have a locked interest rate, you would still have the same rate even when the rates increase in the market before the loan is closed. The downside to this is that your rate most likely might not decrease even if the rates fall in the market.
Step 6 – Home Appraisal
Now, the lender will have to appraise your house to be sure you can get a new mortgage. You will be charged for this appraisal; it is often included in the closing costs. However, the lender may waive the appraisal fee for former clients. The cost of the appraisal may be influenced by the size of the home and its location.
Step 7 – Close the Loan
When it is time to close the loan, some documents will be required. You would also pay the closing costs at this point.
Mortgage Refinancing – Types
The following are the different mortgage refinancing types:
- Rate and term
- Debt consolidation
Mortgage refinancing can benefit a homeowner in several ways. From reducing their interest rate to decreasing the time needed to repay the loan and so on. This move can be quite beneficial especially when it is done at the right time.