Tired of paying high interest rates on your mortgage? Consider refinancing to replace the current credit agreement with a new one.
Here’s a short guide explaining how mortgage refinancing works, when it makes sense, and how you can get started:
What is Mortgage Refinancing?
Mortgage refinancing is the process of replacing your current home loan with a new one. Borrowers do this to consolidate debts or take advantage of better loan terms. You might also consider a mortgage refinance to get quick cash for an emergency expense, such as a home repair.
When to Refinance Your Mortgage
Not sure if refinancing your mortgage is the right option? Here are five reasons it makes sense:
Interest rates have fallen
The most obvious reason to refinance a mortgage is when interest rates have fallen below what you’re currently paying. Refinancing will allow you to switch to a lower-rate mortgage option. Reduce your monthly mortgage payment and save money in the long run.
Pro tip? Keep an eye on the Federal Reserve’s decisions. Moreover, a significant drop in the 10-year Treasury yield is a key driver for reduced interest rates.
Your credit score has improved
So you’ve been making debt repayments on time. If your credit score has improved in the last few years, you can qualify for a better interest rate and more favorable terms.
You want to consolidate debt
Paying multiple debts each month and keeping track of them can be challenging. With mortgage refinancing, you can consolidate different debts and make fixed payments.
You want to change loan terms
Many lenders don’t allow borrowers to change repayment terms mid-way. By refinancing, you can pay off your mortgage faster and save on total interest. Or you can opt for a longer term and lower your monthly payments.
You want to tap the equity in your home
A cash-out mortgage refinance allows you to borrow money against your home’s equity. You can use this money to cover expenses like home improvements.
How to Refinance Your Mortgage
Follow these steps to refinance your mortgage:
Check your credit score
Just as you need to get approval for your original home loan, you need to check your credit score for a refinance. A credit score of 620 or higher is good to go!
If not, spend a couple of months trying to improve your credit score. This will help you qualify for better interest rates.
Determine home equity
Understand how much equity you have in your home. Check your latest mortgage statement to see your current balance. Make sure you have at least 20% equity in your home to qualify for better rates.
Compare offers
Do research and get quotes from multiple lenders. Compare bands, credit unions, and online lenders like SoFi to find the best option.
Submit your application
Applying for mortgage refinancing is pretty straightforward. Submit the application and attach the necessary documentation. This can include your proof of identity and proof of income.
Hi, I’m Bilal, the founder of outofmagazine.com. I love sharing fresh ideas, stories, and helpful insights on all kinds of topics that spark curiosity. My goal with this site is simple—to create a space where readers can find inspiration, useful tips, and engaging reads on lifestyle, trends, and everything in between.
