It’s good to know some basics about the home refinance process even if you’re not currently considering the option. Refinancing your mortgage for the right reasons, at the right time, could save you a lot of money over the years.
This guide can give you a better idea about when to refinance your mortgage.
Refinancing a mortgage is the process of paying off your current mortgage with a new mortgage loan. You should only refinance when you believe it will better serve your finances over time. A lending professional can help you decide if it’s a good time for you to refinance.
You’re not locked in to your current mortgage. You can typically choose to refinance your loan at any time. In some cases, you may have to wait until six months after you signed on your current mortgage.
If you took out your current mortgage in recent years, be sure to check your loan papers to be sure there is no penalty for early repayment of your current mortgage.
Following are a few circumstances under which you might consider refinancing your mortgage:
There are other circumstances in which refinancing could benefit your particular financial situation, which are detailed below.
The home refinance process is similar to the process you went through to obtain your current mortgage. You’ll:
Typically, refinancing a home is easier than securing a loan as a first-time homebuyer, especially when you’ve built up significant equity in your home. You can expect the refinancing process to take around 30 to 45 days, according to Rocket Mortgage.
Refinancing can be beneficial for a variety of reasons. You might consider refinancing if you want to:
A lending professional can help you shop for the best rates to save you money and advise you on whether it is beneficial for you to refinance your home.
You do not have to refinance your home with your current mortgage lender. There are fees associated with refinancing, which can vary depending on your financial situation and other factors.
The closing costs to refinance most mortgages is usually between 2% to 5% of the loan, according to Investopedia. The lender you use to refinance can provide a detailed cost statement to you.
A mortgage broker or lender can help walk you through potential scenarios so you can estimate your savings and possible return on investment. You can also compare lenders to see what types of rates are available to you.
Your situation is unique, so you’ll want to consider:
Consider how long you plan to stay in your home and how much your monthly savings could be when the home refinance process is complete. Calculate your total closing costs and compare those to what you’d be saving on a new loan to determine if it’s worth it.
Refinancing at the wrong time could result in extra costs for you. For example, depending on the value of your home during an appraisal, you may lack sufficient equity to satisfy a 20% down payment on your new mortgage. That could mean you’ll have to pay private mortgage insurance, which will increase your monthly payments.
When you own a home, it can help to be aware of your options, especially regarding your home loan. Refinancing can be a good idea to help you save a significant amount of money over time, but it’s not always the best option. Calculate your savings and research lenders to see what’s available to you.
For more helpful tips for homeowners, check out the Brookfield Residential blog.