Mortgage refinancing replaces your current mortgage loan with one that has better terms. People usually refinance their mortgage to reduce their interest rate, tap into the equity they have in their home, or bring down the monthly payment. Let’s look at a few reasons why you may want to consider refinancing your mortgage loan and how to go about it.
Reasons to refinance your mortgage
- Reducing your monthly payment: If you refinance to a mortgage that has a lower interest rate, you may be able to bring down your monthly payment and save money over time.
- Switching to a fixed-rate loan: If you currently have an adjustable-rate mortgage, you may want to refinance to a fixed-rate mortgage, so you are able to plan your payments better.
- Repaying the loan faster: If you refinance into a loan with a shorter term, you will be repaying your loan faster and, in turn, saving on the interest payments.
- To tap into your home equity: Refinancing your mortgage can help you borrow against the equity in your home. You can use these funds to pay off high-interest debts or consolidate your debts.
- Canceling FHA mortgage insurance: Refinancing from an FHA loan to a conventional loan can help you opt-out of your FHA mortgage insurance.
How to refinance your mortgage?
Here are the steps to refinance your mortgage:
- Understand why you want to refinance your mortgage: Before you start shopping for loans, make sure to evaluate why you want to refinance your loan. Doing this will help you pick the right type of loan.
- Compare different mortgage loan offers: It’s a good idea to compare the interest rate, charges, and terms of a few different loans before you select a particular loan.
- Lock in on the interest rate: If you find a mortgage loan that has a competitive interest rate and favorable terms, make sure to lock the interest rate, so it doesn’t increase before you close on the loan.
- Close on the loan: As the final step, you’ll need to apply for the loan and pay the closing costs.
Once you refinance your mortgage, ensure that you continue making your monthly payments on time to avoid getting into credit problems.