Posted by Jennifer Quilter
When you first got your home loan you were probably happy with what you could get, but now that hopefully you’ve built up your credit score a bit more you”re wondering if you could do better? To answer that, let me explain refinancing a home.
In it’s basic form it’s actually quite simple. Refinancing is financing again, paying off your home loan with a new one. However, if you remember the experience of your original loan process, you know it can take a bit more than how it sounds, and this time you have closing your original loan to think about.
Almost all loans have closing costs, and you’ll want to look through the terms of your loan to see what those will be for you. You also want to see if you have prepayment penalties to deal with as they may be costly.
Just like the first time around you’ll need to handle application and appraisal fees, lender attorney review fees, title and mortgage insurance, and other applicable fees. Most homeowners should plan on paying 3-6% of what’s left on the loan in refinancing costs, plus any prepayment penalties. If you have a second mortgage, you’ll need to pay that off as well.
With all that, explain why I should refinance?
My favorite reason is lowering interest rates. If you will be staying with your home for at least three more years and can decrease your interest rate by two percent most financial experts advise pulling out your calculator and seeing if this will be worth it long term for you.
Other popular reasons include switching to a fixed interest rate, stretching out or shortening the length of your loan to adjust your monthly payment amount, or borrowing more money than you have left to pay on your loan to pay off high interest debts in favor of the lower interest rate.
Whatever your reason for pursuing it, if the numbers say refinancing will be beneficial for you, you should start looking at local lender rates and remember at any point in the process you can ask them more questions and get them to explain refinancing your home.