Refinancing a mortgage can be a strategic way to improve how you pay for your home. Put simply, refinancing a mortgage entails paying off an existing home loan and obtaining a new one to replace it. The process can be costly, but many individuals see the value in refinancing their mortgage, especially for long term financial goals.
Benefits of Mortgage Refinancing
There are a few different reasons why someone might choose to refinance their mortgage. One of the most common reasons is obtaining a lower interest rate. Beyond interest rates, refinancing a mortgage can also shorten the term of the mortgage, access home equity, or consolidate existing debt. Generally, when refinancing a mortgage, individuals aim to save money.
Setting a Financial Goal
Though saving money is a common theme, it is important to determine the exact goal you have in mind when looking to refinance a mortgage. While refinancing your mortgage may get you a better interest rate, for example, it may lengthen your term; in this case, you may spend less on a monthly basis, but you would end up spending more in the end. Your specific goals will determine how you go about refinancing your mortgage.
Checking Your Credit Score
Just like when you first apply for a mortgage, refinancing the loan will require a credit check. To prepare for this, it is advised that you stay on top of debt and regularly check your credit score to ensure you’re on the right track. If your credit score isn’t ideal, you may want to shift your focus to improving your score before setting about refinancing your mortgage.
Doing Your Research
When refinancing, you should be critical about the lenders you consider. From closing costs, interest rates, and more, lenders may have different costs associated with their loans, so it is best to be thorough when deciding on a lender for your new mortgage. Requesting quotes from multiple lenders is often advised.
Preparing Your Finances
Most lenders will want to verify your financial status before providing a loan, and even if they don’t, having accurate records of your income and expenses can help you secure a lower interest rate and a higher chance of approval. Additionally, you may need to account for closing costs, appraisal fees, and other expenses throughout the refinancing process.