Whether you are looking to reduce payments, lower your interest rate, change mortgage companies or take out cash for a large purchase, a mortgage loan is a productive way to save money—but only if you take the right steps. Start by consulting this guide to figure out exactly how to refinance your mortgage.
How to Refinance a Mortgage: An Official Guide
The Essentials of a Refinance
People will often refinance their home to receive a better interest term and rate in the hopes that it will save them more money in the long run.
When you first purchase your home and receive a mortgage, your rate and interest are decided by your credit score, which changes over time. As you progress throughout your career, making money and paying off bills, you may gradually increase your credit score.
So, if you decide to refinance your mortgage and have a significantly better credit score then you did when you first purchased the home, you could be in line for a much better rate, which can potentially save you thousands a year.
Similarly, as a homeowner, you are always putting money in to improve the value of your home. So, if you are refinancing and get an appraisal, your value will be much higher than when you purchased it. As the appraised value rises, the balance owed on your home will decrease. Lastly, since rates are always changing, you can always refinance to capitalize on a better one.
Basically, when you refinance, you pay off your first mortgage by taking out another loan. But first, before you begin the process, it’s important to be familiar with the entire procedure, from start to finish.
- When you decide that it’s finally time to refinance, your home will be professionally appraised to figure out its value.
- Afterwards, the lender will determine the exact percentage of the appraisal that they’re willing to pay and come up with the final loan figure.
- The balance of your first mortgage will then be subtracted from your new rate.
- However much is left will be your new loan, to be paid off at a certain rate over a defined period of time.
It may seem like a complex process, but it can really just be boiled down to a few quick, simple steps.
Do you Qualify?
Contrary to popular belief, not everyone is eligible to refinance their home’s mortgage. There’s certain criteria that you must fulfill first. For instance, if you are unemployed, you’re probably not going to be able to refinance your loan.
Equity and credit score also play a large role. Basically, if you have at least 10 to 20 percent equity in your home and your credit score is above 740, you’re in good shape to refinance. If not, you still have some work to do.
If you’re curious about how to refinance your mortgage loan, these tips should do the trick!