Refinancing 101


One of the biggest financial burdens in life is when you have a mortgage. Refinancing your home will save you money or make your monthly bill payments easier. Now, you should only refinance when you can lower your interest rate, but this is not always applicable. There are some homeowners that may need short-term relief from a lower monthly payment, even if you need to start over with a new 30-year loan.


When Is the Right Time to Refinance?


The number one trigger when it comes to refinancing is when homeowners start to notice that mortgage rates are falling below their current loan rate. However, there are other good reasons why you should consider refinancing, and they are the following:

  • Homeowners are looking to pay off the loan quicker through a shorter term.
  • Homeowners are looking to tap a bit of home equity with a cash-out refinance.
  • Homeowners have gained enough equity in their homes to refinance into a loan without any mortgage insurance.

The rule of thumb when it comes to refinancing is if you can reduce your interest rate by at least 1.5  percent. However, there are plenty of lenders that say one percent is enough for homeowners to consider refinancing.

Remember that when you reduce the interest rate, it will not only help you save money but will also increase the rate at which you would build your equity in your home. Aside from that, it can decrease the size of your monthly payment.


Good Mortgage Rate: How to Know


Once the Federal Reserve lowers short-term interest rates, plenty of people expect mortgage rates to follow. However, mortgage rates will not always move in lockstep with short-term rates. Make sure that you avoid focusing too much on low mortgage rates that you may read or see in different advertisements.

Keep in mind that the mortgage refinance rates change throughout the day, every single day, and the rate that you will be quoted may be higher or lower than the rate published at any provided time. The mortgage refinance rate is based on your credit score as well as the equity you have in your home.

You will be more likely to get competitive rates when your credit score is good and you have proof of steady income.


The Inner Workings of Refinancing: What You Should Know

Once you decide to refinance, you will get a new mortgage to pay off your existing mortgage. Refinancing is the same as getting a mortgage to buy a new home. You will be free from any stress of home buying and moving. There is also less pressure to close a deal by a particular date.

If there will come a time that you regret your decision, you have until midnight of the third business day after you have closed your loan to cancel the transactions that you have done.

You also have to submit an application and meet your lender requirements in different areas, such as credit score, debt-to-income ratio, and employment history. You will have a choice to go with your original lender or find a new one when it comes to refinancing.

You, as a homeowner, should also have enough equity in your home to qualify for a refinance. The equity in your home should be typically at least 20 percent.

Make sure that you keep in mind that you will also need to pay closing costs and fees. It should be around three to six percent of the loan’s value. The value for this can add up to thousands of dollars, so it is best that you crunch the numbers to make sure the money you will save in interest will exceed the closing costs.


How to Find the Best Refinance Rates: The 101


For you to find the best finance rates, you will need to do some work but rest assured it won’t take too much of your time. Make sure to look at banks, credit unions, and online comparison sites so that you can find the best finance rates. Aside from that., you can also work with a mortgage broker if you want someone to do all the work for you.

The government will require the loan estimate to show your estimated interest rate, monthly payment, and closing costs on a standard form that will make it easy to compare information across different lenders.

We recommend using Rocket Mortgage as they are the largest lender in the United States and as such offer many benefits over other lenders.


Final Thoughts


Refinancing can be a great financial move when it comes to reducing your mortgage payment, shortening the term of your loan, or helping you build equity quickly. If used carefully, it can be a valuable tool for bringing your debt under control. Before you take a step-in refinancing, make sure that you take a careful look at your financial situation and ask yourself important questions.

It always pays to remember that savvy homeowner is always looking for ways to reduce their debt, save money, build equity, and eliminate their mortgage payment. When you take cash out of your equity in refinancing, it doesn’t help to achieve any of these goals.