Homeowners may choose to refinance their mortgages if they feel they can benefit from a reduced market interest rate. Interest rates, as you surely know, greatly impact the overall cost that a person contributes toward the repayment of a loan. When the interest rate is lower, the more funds that can be paid directly toward a mortgage loan’s principle. For this reason, many feel compelled to refinance when the time is right.
Mortgage refinancing is something of a mystifying topic for first-time homeowners and those who have never considered refinance before. To help you better understand this process, we’ve compiled a FAQ sheet to answer your burning questions about mortgage refinancing. If you don’t qualify for a refinance you can always seek a second mortgage.
10 of Your Mortgage Refinance Questions Answered:
Are you considering refinance? Do you simply want to know what this means, even if you have no desire to refinance your mortgage at this time? Continue reading to learn the basics of mortgage refinance!
What Does it Mean to Refinance a Mortgage?
In refinancing a mortgage, the homeowner may take out an additional mortgage loan that repays their existing mortgage. This allows the homeowner to take advantage of home equity or even lower interest rates, which can save big money over time.
How Does One Access Home Equity by Refinancing?
If the second loan you take out exceeds the remaining balance of your mortgage, the remaining amount functions as a HELOC, or home equity line of credit. You can use this amount any way you please.
Why do People Refinance Their Mortgages?
Refinancing seems like a pretty big step to take, but for many homeowners it is worthwhile. Generally speaking, most homeowners will refinance to accomplish one of these three goals:
- To benefit from lower interest rates.
- To access their home’s equity via a HE LO C.
- To consolidate their existing, unsecured debts.
How Does One Refinance Their Mortgage?
Refinancing is very similar to getting a mortgage loan in the first place. You must meet with your chosen lender, provide the information related to your property and current mortgage, and subject the home to an appraisal. If refinancing is approved, the lender will use the balance of the second loan to pay off the first.
When is a Good Time to Refinance?
Refinancing a mortgage isn’t a decision that should be made lightly. After all, we’re still talking about a loan. If you find yourself in any of these circumstances, refinancing could be the solution you’re looking for:
- Your adjustable-rate mortgage is too volatile.
- The market has determined that interest rates have reduced.
- You need to access the equity of your home.
- You want to pay off your mortgage quicker.
Is it Possible to Reduce Payments Through Mortgage Refinance?
Since mortgage refinance allows homeowners to take advantage of a longer maturity term or reduced interest rates, it is certainly possible to reduce your payments after refinancing your mortgage.
Are There Additional Fees to be Paid When Refinancing?
You will have to pay for closing day costs and appraisals, just as you did when you took out your first mortgage loan. Additionally, you may have to pay penalty fees if you broke your first mortgage early.
When is Refinancing a Bad Idea?
If you aren’t 100% sure that you will still be in the home for an extended period of time, mortgage refinancing isn’t worth the time and cost associated with it.
Do You Have to Refinance with Your Current Lender?
Nope! You can choose to refinance with your current lender, of course, but there is nothing stopping you from shopping around and seeing if other lenders can provide competitive rates.
Do You Start from Scratch When Refinancing?
Some first-time homeowners worry that refinancing would mean setting the clock back on their mortgage, essentially sending them back to square one. This is not what happens! Let’s say that you have repaid half of your initial mortgage loan. Refinancing would only apply to the remaining half of your mortgage loan, not the entire amount you initially took the mortgage out for.