Tips on Refinancing a Mortgage

Mortgage rates are at an all-time low. There has never been a better time to refinance your home than now. According to Nerd wallet, these were the findings of mortgage APRs in January.

  • 30-year mortgage rates had an Annual Percentage Rate (APR) of between 2.8% -3%.
  • 15-year mortgages had an APR of between 2.5% and 2.7%.

This data was sampled across the major mortgage national lenders. These interest rates are lower than what I am paying in my mortgage, and I saw this as the best time to refinance my house. I have detailed the tips I took to successfully refinance in the subsequent sections.

Defining a Mortgage Refinance

A mortgage refinance is a loan that replaces your current loan with a new one. Some of the reasons that people refinance include:

  • To reduce the interest rate-as was in my case.
  • To reduce monthly mortgage payments

Now let us dig into refinancing and see how it works.

How Refinancing Works

Most new homeowners get a mortgage when buying a home so that they can pay the seller. Refinancing through a company such as SoFi means you can get a new loan that pays off the balance on the old mortgage. This allows you to alter your monthly mortgage repayments to better suit your current needs. Mortgage refinancing requires you to apply for a loan, go through the underwriting process which verifies the information you have given, and is then followed by the closing process.

Reasons and Tips for Refinancing

Before you apply for refinancing, you need to understand why you are refinancing and how to choose the best mortgage loan for refinancing. Let us discuss the reasons and suitable refinancing options for each reason.

Decrease Home Payments

I wanted to pay less in mortgage payments each month, so I refinanced my loan to get a lower interest rate. Initially, my interest was 4.25% for 30 years, but after refinancing the interest was reduced to 2.6% for the remaining 15 years. If you cannot get a reduced interest rate, but you still want to make lower payments, you can increase the length of the loan, for example, from 15 years to 30 years, it depends on the type of mortgage you’ve borrowed and their interest rates. If you would like to read more about a different mortgage, you can visit a site similar to LeverageRx (https://www.leveragerx.com/physician-mortgage-loans/) to see how the rates may differ.

Pay Off the Loan Faster

Most people do not realize that the more you pay for a mortgage, the higher the interest you pay. When I refinanced my loan from a 30-year mortgage to a 15-year mortgage loan, I paid more each month, but I saved a lot in terms of interest.

Change to a Fixed-rate loan From an Adjustable-rate Loan

Interest from an adjustable-rate loan can increase at any time and increase your payments. Fixed-rate loans stay constant. Refinancing from an adjustable-rate loan to a fixed loan guarantees me fixed payments and peace of mind when interest rates go up.

Use Home Equity

Refinancing can get you some money and a lower interest rate at the same time. This is because in case the home value is more than your current mortgage debt, you can get a check for the difference. This is defined as a cash-out refinance.

Eliminate FHA Mortgage Insurance

You will agree with me that mortgage insurance increases your monthly mortgage payments. Although you can cancel private mortgage insurance, getting rid of the Federal Housing Administration (FHA) mortgage insurance payments is very hard. The only way to eliminate this insurance is to either refinance the home through equity or sell it. To get my home equity, I estimated the value of the house then removed the mortgage balance.

Choosing the Right Mortgage Loan Period

When I wanted to reduce my monthly mortgage payments, I was tempted to take up another 30-year mortgage. However, this would have led to higher interest payments in the long term and an extended payment period. Instead, I asked the lender to give me a loan on the remaining term of the current loan, which was 15 years. I am paying more than I used to pay, but I will pay less interest in the long term. If I had a long term remaining, say, 25 years, I could have asked for a lower interest rate and lower payments since it was an extended period.

Steps to Refinancing Well

If you have decided to refinance, here are some steps to help you out.

  1. Define your goal for refinancing. Decrease monthly payments? Reduce the loan term?
  1. Look for the best mortgage refinance rates and check out the fees too.
  1. Apply for a mortgage loan from three to five lenders.
  1. Select a refinance lender. Compare various loan estimate documents from different lenders to know the closing costs.
  1. Lock the interest rate for a period so that both you and the lender can close the loan before the interest expires.
  1. Close the loan.

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