Are you thinking about refinancing your home? There are times when getting a new mortgage makes sense so long as the benefits outweigh the costs. Here are some answers to your questions about refinancing your mortgage.
1. What is Refinancing?
By refinancing, you take the principal you’ve built up to pay off the existing loan and then take out a new loan for the balance, meaning the loan amount will hopefully be less. People do this for a number of reasons. One is to reduce the mortgage payment. If the interest rate is now lower than it was when you first bought your house, refinancing can mean smaller payments.
Or if you’ve got some equity built up and your home is now more valuable than it was when you bought it, you can refinance and take cash out for other purposes. Your loan will increase in that case, but if you need financing to start up a business or remodel your home, this could be a way to get the funds.
2. When Should You Refinance?
When asked, Peter Comisar tells people to look at the total cost of refinancing a mortgage. If that amount is greater than what you’d save, you’d be better off staying with the original loan.
Other reasons to refinance include if you have an adjustable-rate mortgage. Then it makes sense to refinance and apply for a fixed-rate mortgage instead. Or if you’ve gotten married since buying your home and you want to add your spouse to the mortgage. Refinancing is the easiest way to add a second person to the loan.
3. Can You Refinance?
Applying to refinance your mortgage is similar to applying for a mortgage in the first place. You’ll need to provide proof that you have a job and make sufficient income to pay your new mortgage. You also have to disclose what assets you own and how much you owe in other debts. The loan officer looks at all of these factors along with your credit rating to determine whether you’re a safe bet for a loan.
4. How Can You Refinance?
Check your credit rating to make sure you qualify for a loan and then look for a lender. When you find the best rate, apply for that loan and submit your documentation.
Refinancing isn’t for everyone, but if the savings outweigh the costs of applying for a refinance, you’ll find the effort is well worth the reward.