So you’re already a homeowner. But maybe you’ve looked around and noticed that mortgage interest rates seem to be lower than they were when you applied for your original mortgage a few years back.
Or perhaps you’ve heard that by refinancing your mortgage, you can lower your mortgage payments. Maybe you’re just hoping to get cash to remodel your kitchen.
Refinancing your mortgage could be a smart financial decision, but there are some factors to weigh. Here are some things to consider if you’re thinking about refinancing your mortgage.
What, Exactly, is a Refi?
Refinancing your mortgage is simply replacing your current mortgage loan with a new loan. The funds from the new refinance loan pay off the old mortgage. At the end, you’re left with a new mortgage to pay back.
Most people refinancing their mortgages do it to save themselves some money. If you refinance your mortgage, you may be able to get a lower interest rate or reduce your monthly payment. Or, you could potentially shorten the length of time you’ll spend paying your mortgage back.
You could use the refinancing process to switch the type of mortgage you’re paying to something better suited to your current needs. For example, you could switch from an adjustable rate mortgage to a fixed-rate mortgage to avoid worrying about rising interest rates in the future.
And of course, you can also refinance your mortgage to cash out some of the equity you’ve built up in your home to pay for a large expense like a kid’s college education or to consolidate some other, higher-interest debts. Careful with this one. The interest rate on your refinanced mortgage may be significantly lower than the interest rate on those credit cards. But if you’re going to spend years longer paying off that mortgage, the interest can really add up.
What Should I Keep in Mind If I’m Considering a Refi?
Remember, just like the first time you took out a mortgage, there are fees and costs involved in refinancing. And rates for refinance mortgages can change rapidly, sometimes within a few days. If you see a refinance rate you like and think, “Great, I’ll get on that next weekend,” you may be out of luck.
That said, this isn’t your first rodeo. Since you’ve already been through the process of obtaining a mortgage before, going in for another round should be a little easier than it was the first time you did it. Hopefully, you’ve also demonstrated over the years that you’re a responsible borrower with a history of timely payments. You’ve rounded up the necessary supporting documents in the not-so-distant past. Plus, you’ve got some idea of what the process is like. If you do your homework, refinancing your mortgage may be a great option to help you to meet your financial goals.
If you have any questions about refinancing (or anything related to mortgages for that matter), feel free to reach out to us directly at firstname.lastname@example.org.