How And Why to Refinance Your Mortgage

Definition of mortgage refinance

Refinance your home loan to replace it with a mortgage. Refinances are often done to lower the interest rate, reduce monthly payments, or tap into their equity. Refinances can be used to reduce the interest rate, eliminate FHA mortgage insurance, or switch from an adjustable-rate loan to a fixed-rate one.

Let's start with the most important aspects of refinancing your mortgage. Then, let's go through each step.

How does refinancing work?

A mortgage is required to finance the purchase of a home. The lender receives the money, and the seller gets it. Refinance a home, and you will get a new mortgage. The new mortgage will pay off the remaining balance on the existing home loan instead of going to the seller.

Refinance mortgages require you to be qualified for the loan. As you did when you purchased the house, you filed an application and went through the underwriting process.

Why and when you should refinance a home

Before you start refinancing your home loan, think about why. The goal you set will guide you through the entire mortgage refinancing process.

Reduce your monthly payment. If you want to pay less each month, refinance your loan into one with a lower interest. You can also extend the loan term to lower your monthly payments, such as from 15 to 30 years. You will pay more interest over the long term if you extend the loan term.

Tap into equity. The lender will give you a check for any difference if you refinance to borrow more money than you owe on the current loan. This is called a Cash-out Refinance. Many people get both a cash-out refinance as well as a lower interest rate.

You can pay off your loan more quickly. Refinance from a 30-year mortgage to a 15-year loan, and you'll pay the loan off in half the time. You pay less interest over the loan's life. A 15-year mortgage has its pros and cons. The downside is that monthly payments are more expensive.

FHA mortgage insurance can be canceled. However, the Federal Housing Administration mortgage premium that you pay for FHA loans cannot be canceled. If you have enough equity, the only way to get rid of FHA Mortgage Insurance premiums is to sell your home or refinance your loan. To calculate your equity, first estimate your home worth. Next, subtract your mortgage balance.

Change from an adjustable-rate loan to a fixed-rate loan Adjustable-rate mortgages have an increased interest rate over time. Fixed-rate loans remain the same. If you prefer stable payments, refinance from an ARM to a fixed-rate loan will provide financial stability.

Shop the best refinance rates

You will need to do some research, or perhaps web work, and make phone calls. It is important to compare the best rate for your loan and receive a Loan Estimate from each lender. Every potential lender must issue an estimate within three business days of receiving your basic information.

The Loan Estimate consists of a three-page document detailing the loan terms, projected repayments, and any other fees.

Compare loan details from different lenders to determine which one is right for you. You can use this time to calculate your mortgage refinance.

Refinancing a mortgage, step by step

Are you ready to tackle the refinance process? Go!

1. Set Your goal. Lower monthly payments Reduce the term of your loan. Eliminate FHA mortgage insurance

2. Find the best mortgage refinance rate. Pay attention to fees too.

3. Get a mortgage from three to five lenders. Although the credit score of your first lender will be slightly lower (often less than five points, according to FICO), subsequent inquiries let lenders know that you are rate-shopping and should not affect your score. To minimize credit score impact, submit all applications within two weeks.

4. Find a mortgage lender. Compare the Loan Estimate documents provided by each lender after you submit your application to find the best deal. The Loan Estimate will show you how much money you'll need to pay closing costs.

5. Lock your interest rate. The interest rate you have locked cannot be altered during the specified time period. You and the lender will work together to close the loan before the rate lock expires.

6. Closing on loan. You'll then have to pay the closing costs listed in the Loan Estimate as well as the Closing Disclosure. Refinance closing is similar to closing on a purchase loan. However, you will not be given the keys to your home.

Conclusion

Above is a detailed guide to how and when you can refinance your mortgage. If you want a professional Burnaby Mortgage broker call us at 778-996-7283