Most people live on a budget, so mortgage refinancing is common because refinancing can potentially save hundreds of dollars each month in mortgage payments or related fees, especially if you know how to maximize your refinancing savings. Saving money isn’t the only reason to refinance. Borrowers can make improvements to take advantage of lower interest rates, extend or shorten payment dates, reduce (or eliminate) mortgage insurance (called PMI), improve equity and cash collection, or a combination of factors. The decision to refinance your home mortgage is highly personal and depends on your income, the number of homes, and how long you plan to stay home. Making the right decision can save you thousands or even tens of thousands of dollars during your loan process.
Not all consumers are eligible for conventional mortgage refinancing. Fortunately, there are government and lender programs that can help qualify you based on factors like the value of your retirement fund, veteran status, Native American status, or other special considerations.
To find mortgage refinancing options for most consumers with mortgage applications, we researched the good companies that offer refinancing in most or all countries — and picked the best three. In this guide, we’ll explain how to determine what you need to fund from regeneration, compare costs, and find the best lender for your finances.
Top Mortgage Refinancing Tips:
- Refinance when interest rates are low or falling, and when house prices increase
- Plan to stay at home for at least 5 years before refinancing
- Monitor your credit score leading to refinancing – and take steps to clean it up
Smart Buyer Tips
If you’re considering mortgage refinancing but aren’t sure where to start, check out these four tips to help jumpstart your research.
Decisions to Make Before Refinancing
Before contacting a lender for refinancing, consumers need to make some important decisions about how long they want to stay at home. It’s also crucial to look at the lifestyle choices that affect your financial situation. For example, is traveling or modifying your home to accommodate physical needs like a wheelchair stairlift in your plans?
“If you don’t plan (or can’t) stay in your home for at least five years, refinancing could be the wrong decision.
Potential mortgage refinances applicants must also determine how much equity they have at home. You can do this by subtracting the amount of your mortgage from the appraised value (if you are in the market for a sale you still owe your mortgage. If you don’t have much equity in your home or still have a high mortgage Loan balance, you won’t get a lot of money from refinancing. As a rule of thumb, unless you have at least 20% in equity or $1 billion, whichever is greater, you shouldn’t improve.
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Home Equity Affects Refinancing Terms
You also need to decide how long you intend to pay. Typical terms are 15 or 30 years. If you’re 62 or older, pay off your existing mortgage with a reverse mortgage that’s common. Ask your lender about Fannie Mae’s government program, the Affordable Refinancing Program for Homes (HARP), or a loan program designed to help retirees get a new or renewed mortgage based on assets and monthly income.
Lenders typically collect most of the mortgage interest early in the loan repayment period. In other words, in the first few years, a much lower percentage of your mortgage payment goes towards the loan principal, and most of your payments will go towards interest payments. What this means to you is that refinancing usually makes more sense early in the loan, but not shortly after the initial mortgage, when you haven’t built equity in the house. Whether now is the right time for you to refinance depends on the amount of down payment on your home when you close your mortgage, how long you’ve paid off the loan, and the market value of the home in your area.
Refinance. Source: Getty.
Mortgage Refinancing Costs
As you can imagine, mortgage refinancing involves costs, including settlement costs, interest charges, and other charges. While transaction costs are usually lower than for a new mortgage, the total amount can run into thousands of dollars. Interest rates and transaction costs will be based on factors like the lender and your credit score or home value. If your friend or neighbor recommended a lender because of low-interest rates, talk to the agency to find out what the current rate is based on the terms of the loan you need and other factors like your credit rating. No matter who the lender is, it’s best to choose a fixed-rate loan over a variable-rate (ARM) loan, as the latter may cause your future repayments to increase.
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to know the cost
If you re-integrate, divide the total estimated closing costs by saving on monthly mortgage payments. If you benefit from refinancing for longer than you need to stay at home, it may not be the best option. Use the online mortgage refinancing calculator from Fannie Mae or the online calculator available from the mortgage lender’s website to help you decide that refinancing is a wise decision.
Research potential mortgage refinancing lenders
Savvy Mortgage Shoppers compare interest rates and closing fees for any potential mortgage refinancing. Ask friends and family about lenders and scan online reviews. Once you’ve narrowed your options down to a shortlist, like our top three companies, it’s some research yourself. Read all fine print and ask when talking to your loan officer. Beware of complaints about predatory lending practices and don’t take everything a mortgage lender faces.
