Did you know that only 7% of people who have a mortgage in the United States have completely paid off their debt?
As interest rates continue to fluctuate, many people are beginning to look into refinancing their mortgages. If you’re looking to control your financial future, learning how to refinance your mortgage is a step in the right direction.
That’s why today, we’ve created this complete guide to help you understand why you should refinance your mortgage and how to go about doing so. Keep reading to learn more!
What Does It Mean to Refinance Your Mortgage?
When an individual talks about refinancing their mortgage, they discuss the process that they went through to get a new loan for their home. The new home loan that they receive will replace the old home loan that they had.
People will refinance their mortgage to save on the interest rates paid for their old mortgage.
Why Should You Refinance Your Mortgage?
Taking the time to refinance your mortgage is a great way to help save money on your interest rates. However, there are several other benefits that you can read from refinancing your mortgage.
No More PMI
If when you originally purchased your house, you didn’t put down a 20% down payment, you’re paying PMI as a part of your monthly mortgage payment. Every mortgage lender will require you to pay for a PMI if you don’t put down 20% of the total home value as a down payment.
A PMI will protect a mortgage lender in the event that you are unable to pay your mortgage and the home ends up going into foreclosure. The downside for you is that a PMI is expensive and will drastically reduce how much you’re able to pay off on the loan principle.
Reduce Loan Term
Do you have a 30-year mortgage? If you’re looking to cut down on the loan term and reduce the amount of time that it takes for you to pay off the debt you have on your home, you can consider reducing your long-term. Another option that you can consider instead of having a 30-year mortgage is to switch to a 15-year mortgage.
The sooner you’re able to pay off your home’s entirety, the more money you’ll be able to keep in your pocket. Plus, by reducing the loan term, you’ll also have a lower interest rate. As a result, you’ll be able to pay more of the principal off in a shorter period.
Get a Different Type of Loan
If you got stuck with an adjustable-rate mortgage, you can refinance your mortgage and get a different loan type. To provide yourself with consistency, you can switch to a fixed-rate mortgage!
Does It Cost Anything to Refinance a Mortgage?
Refinancing your mortgage will help you to save money. If you find that refinancing your mortgage will cost you more than it would to keep your current mortgage, you should avoid refinancing.
You should be aware that you will have to pay closing costs when you refinance your mortgage, but how much you spend will vary on the state that you live in and your current financial situation.
You can expect your closing costs to cost you up to 6% of the total refinance loan that you’re borrowing. The closing costs will pay for:
- Origination fee
- Points fee
- Home inspection
- Lender’s attorney review
- Title search
- Home appraisal
- Refinancing application
Unlike when you buy a house, a refinancing loan won’t require you to pay mortgage insurance, property taxes, or homeowners insurance.
How to Refinance Your Mortgage
Now that you’ve decided that it’s time for you to refinance your mortgage, you need to calculate numbers. One of the easiest ways that you can determine if it’s the right move for you to refinance your mortgage is to use a mortgage refinance calculator. Plus, a mortgage refinances calculator will help you to shop around for the best available refinancing rates.
Once you put in information about your current loan amount, you’ll understand what your interest rates will look like. Using a refinance calculator will allow you to identify how much money you’ll save each month on interest rates and your loan.
A refinance calculator will also give you insight into whether it’s a good financial move for you to make at the current time. Refinancing your mortgage isn’t a good financial transaction to make for everyone, so you want to make sure that the math that you calculate works and benefits for you.
Shop Around for Different Refinance Rates
After deciding that refinancing your mortgage will financially work in your favor, it’s time for you to shop around for different refinancing rates. While some refinance calculators will provide you with contact information for different refinancing companies, you may want to do independent research apart from the calculator.
Be sure to write down the refinance lenders that you’re interested in working with to compare the details of each lender. Make sure that you work with the details of the lender’s provide you with in the refinancing calculator so that it’s easier for you to decide which refinance loan would be best for you.
Understanding How to Refinance Your Mortgage
Are you interested in saving money on your mortgage? Learning how to refinance your mortgage will help you save money by lowering your interest rates and possibly saving you from paying a PMI.
Refinancing your mortgage isn’t the best decision for everyone to make. If you’re interested in learning whether it’s the right financial move for you to refinance your mortgage or not, we are here to help you. Click here to get a quote to learn more!