Depending on the original terms of your mortgage and your current financial situation, you may decide at some point that it makes a lot of sense for you to refinance your mortgage and get better terms. Whether you are looking to get a better interest rate or hoping to tap into the equity to pay off your debts, refinancing can be a good idea for some homeowners.
Before you jump into the refinancing game, you need to be prepared and understand how the whole process works. To refinance your home, you will still need to do a lot of the same steps as you did during the original mortgage process. Some of the things you should consider when you want to refinance your home include:
How Do I Refinance My Mortgage?
One of the first questions that you may have when it is time to do a refinance of your home is how to get the work done. The refinance process is fairly in-depth, similar to what you did when you first purchased your home. This means that you will need to be prepared.
You can start out by comparing the different lenders on the market. There are many programs available to help you with a refinance, based on your background, financial history, and more. You should compare at least five lenders to see what they are able to offer in terms of programs and even interest rates. Talk to them to get a better idea of what they can offer.
You also should start to gather some of the paperwork that will be necessary for the refinance process. You can take a look at your credit score, pay down some debts, and even collect tax returns and pay stubs to help prove the income you have. Bring in some of the original mortgage paperwork to help you show what you are currently paying on the home as well.
Each lender will have different requirements they would like you to meet, so grabbing extra papers will help you be prepared. You may have to collect more documents as time goes on.
When Should I Refinance My Mortgage?
The timing of the refinance on your home will depend on the situation that is causing you to look to refinance. For example, if you would like to refinance in order to get a better interest rate, you will watch the rates and wait until they get low enough that it makes sense for you to change up your mortgage.
For those who would like to take out money from the equity of their home, you will want to wait until the home has enough equity to make sense to use that money. Depending on your market, you may have to wait a number of years to get that done. Keep in mind that you can’t take out the full equity of the home as most lenders won’t take on that much risk with you.
No matter the reason that you choose for refinancing your home, you need to make sure that you are financially ready. There are fees to refinancing your mortgage, so make sure that you have enough money set aside to get this done too.
You also have to consider other aspects of your finances before starting too. This means your credit score needs to be as high as possible, so take the time to clean up the score to have it look as good as possible. Consider your debt to income ratio too and consider cutting out some debt before refinancing if you notice the debt to income ratio is a bit high.
Why Should I Refinance My Mortgage?
Each homeowner will have a different reason why they will choose to refinance their own mortgage. It is a personal decision and one that you should only make after you look at all of your options and determine this makes the most financial sense. Some of the reasons you may choose to refinance your home include:
- To get a lower interest rate: If you were locked into a high-interest rate when you purchased the home, or you have a variable interest rate and the rates keep going up, you may choose to refinance to get a lower rate. This can help to lower the monthly payment, helping you get the debt paid off faster than before.
- To have extra money: You can also choose to refinance the home to tap into the equity. Some homeowners do this to pay off debt, or to help with a major home improvement that the house may need at the time. You can even use it to go on vacation. Just remember this can be risky and you have to pay that money back.
- To change the length of the mortgage: If you would like to get the mortgage paid off faster, it is possible to refinance and change the length of time for the mortgage. Or, you can choose to go with a lower payment and refinance to a longer-term too. Keep in mind the latter is going to mean more interest on the term of the loan as well.
You will have to take a look at some of your finances and then determine whether it makes sense for you to refinance your mortgage or not. Always remember there are fees and certain financial requirements that you need to meet to get the refinance done, so crunch some of the numbers ahead of time to help.
Choosing to Refinance Your Mortgage
Not every homeowner decides to refinance their mortgage. There are times when it would not make a lot of sense to do this, so they will choose to leave the original terms in place. But there are also sometimes when it makes a lot of sense to do a mortgage refinance as well. Take a look at some of the tips above to see whether refinancing your mortgage makes sense.