If you're a homeowner, you've likely heard the term "refinance" before. Refinancing is when you replace your mortgage you currently have with a new one. You might consider refinancing your mortgage for several reasons, like getting a lower interest rate or freeing up cash for other expenses. We'll explore what mortgage refinancing is, how it works, the different types of mortgage refinance loan options available when to refinance, and how to refinance your mortgage.
What is a Mortgage Refinance?
Replacing your mortgage with a new one is part of Mortgage Refinancing. When you refinance your mortgage, your current mortgage is paid and you take out a new one with different terms. These terms could include a new interest rate, a new loan term (How long you have to pay your mortgage back, typically 15 to 30 years), or another type of mortgage altogether.
How Refinancing Works
Refinancing a mortgage is like applying for a new one. You'll need to provide financial documentation, such as pay stubs, ID, current mortgage statement, insurance information and W-2’s. You will also need to agree to a credit check. The lender will use the information to determine if you qualify for a new mortgage and your new loan terms.
Types of Mortgage Refinance Options
Several types of mortgage refinancing options are available, including traditional mortgage refinance loans and cash-out refinancing.
Traditional Mortgage Refinance Loan
A traditional mortgage refinance loan is when you replace your current mortgage with one with a differentinterest rate. Going with a traditional mortgage refinance loan can save you money on your payments and potentially reduce the full interest you pay over the life of the loan.
Cash-Out Refinancing
Cash-out refinancing is when you receive a new mortgage that is bigger than your current mortgage, and receive the difference in cash. This option can be ideal if you need to save money for expenses such as home renovations or paying off high-interest debt. It is important to note, one one hand, that cash-out refinancing comes with a higher interest rate in comparison to a standard rate and term change refinance and may increase the total interest you pay over the life of the loan.
When to Refinance a Mortgage
Deciding when to refinance your mortgage depends on your financial situation. Here are some common reasons why homeowners consider refinancing to:
- Obtain a lower interest rate: Refinancing could help you get a lower rate if interest rates have dropped since you obtained your current mortgage.
- Shorten the loan term: If you have a 30-year mortgage and would like to pay it off sooner, refinancing to a 15-year mortgage could help you achieve this goal.
- Pivot to a fixed rate mortgage: If you have an ARM (adjustable-rate-mortgage) and are concerned about rising interest rates, refinancing to a fixed-rate mortgage could provide peace of mind and stable monthly payments.
- Pay major bills: My family used the equity in their home to pay for college for 3 kids in school at the same time.
How to Refinance a Mortgage
If you're considering refinancing your mortgage, here are the steps you'll need to take:
- Check your credit score: Your credit plays a critical part in whether you qualify for a new mortgage and what your interest rate will be.
- Determine your goals: Think about why you want to refinance your mortgage and what your goals are. Your goals will help you find the type of refinancing option is best for you.
- Speak with Valor Mortgage: Pre-apply for a Mortgage Refinance Loan with us and we'll help you get started applying for a home refinance loan.
- Gather financial documentation: You'll need to provide financial documentation, such as previous pay stubs and W-2s, to the lender during the application process.
- Close on your new loan: Once approved for a new mortgage, you'll need to close on the loan. Closing the loan involves signing a new loan agreement and paying any closing costs associated with the refinance.
Mortgage refinancing can be a smart way for homeowners to save money on their mortgage payments, obtain a lower interest rate, or free cash for other expenses. Understanding the different types of refinancing options available and when to refinance can help you decide whether refinancing is right for you. If you're considering refinancing your mortgage, reach out to us or pre-apply for a mortgage refinance loan with Valor Mortgage.
