Refinancing your home can pay off in big ways for your personal finances – especially when rates have fallen. From locking in a lower interest rate or shortening your loan term to receiving a portion of your home’s equity as a lump sum of cash you can use to pay for unexpected expenses or consolidate debt, refinancing may be your ticket to a complete revitalization of your budget.
No matter your reason for refinancing a mortgage, you want to be sure you’re set up for success. There are a few things you need to know to help you be prepared.
The cost to refinance a mortgage.
Refinancing isn’t free. There are costs associated with a refinance, much like the initial costs associated with the mortgage you go when you purchased your home. Costs and fees associated with a refinance include bank fees, appraisal fees, attorney fees and title insurance. You’ll need to plan on paying closing costs up front, which typically range between 2 to 5% of your loan amount.
Some lenders offer a no-closing-cost refinance option, but that’s usually in exchange for a higher interest rate. A mortgage refinance calculator can help you determine just how much refinancing will save you, so you’ll know how long it will take to recoup your closing costs. Make sure the costs of refinancing your home loan don’t exceed the potential savings.
You’ll be starting at square one on paying off your loan.
The longer you’ve been making payments on your home mortgage, the more of your money is applied to the principal each month rather than interest. If you refinance, you’ll be resetting the clock on your loan, which means most of your payments will go to interest once again.
Do a side-by-side comparison of your current amortization schedule and your potential new amortization. How much longer it will take you to pay off a refinanced loan? If you’re simply refinancing for the savings and plan to apply those savings back to your loan, refinancing may make more sense for you.
Savings should come quickly.
Wondering if now’s the right time for a home refinance? Do the math to determine how long it will take your savings to repay the costs of a refinance. Generally, you want your new interest rate to be about 100 basis points (or 1%) below your current interest rate.
Try our free refinance mortgage calculator to get an idea of your potential mortgage refinance savings.
Determine the right loan for you.
There are endless reasons why you may want to refinance your current loan. Perhaps you’re hoping to lower monthly payments, shorten the life of your loan or pull equity from your home as cash you can use however you want including managing other debt —it’s important to know what type of loan best fits your goals.
Browse our mortgage refinance programs to get an idea of what suits you best. You can always contact a PrimeLending refinance expert to ask your refinance and mortgage questions.
Talk to a Mortgage Expert Today.
A cash-out refinance could help you access your equity.
If you have equity, a cash-out refinance* could be used to access a portion of your home’s equity and receive the funds as a lump sum payout. Considering a home remodel or addition that will add value to your property? A cash-out refinance can be a smart move.
A cash-out refinance works by allowing you to take out a new mortgage for more than the amount you owe on your home and pocket the difference as cash you can use however you want.
Be prepared for paperwork.
The refinance process is similar to getting a mortgage. For instance, you’ll need to provide all the necessary income, asset, and home value documentation. Required documentation varies depending on lender, loan type and personal financial situation, but some of the basic refinance documentation you can plan on needing include:
- Pay stubs
- Proof of insurance
- W-2s
- Tax returns and 1099s
- Title insurance
- Credit report
- Statement of assets and liabilities
Get ahead of the game and begin gathering these documents before you submit your refinance application. But don’t be surprised if you’re asked to provide more.
Now that you know the basics of a home refinance, you can consider whether it would be the right move for you, especially if you’ve had a change in your personal financial situation, your home value has increased, or interest rates have gone down since you initially financed your home. Pick up the phone and call PrimeLending today to speak with a home loan expert in your area who can help you learn about your refinancing options.
*All loans subject to credit approval and meeting eligibility requirements. Restrictions apply. Must meet minimum equity requirements. By refinancing an existing loan, the payments and total finance changes may be higher over the life of the loan.
