What is mortgage refinancing?

Definition and Example of Mortgage Refinancing

Mortgage refinancing involves replacing the current loan with a new one. The goal of refinancing is to replace the existing mortgage with one that offers better terms. Homeowners typically refinance their mortgage to obtain more favorable interest rates or other loan features that can save them money.

How Mortgage Refinancing Works

The steps to take for refinancing a mortgage are similar to those you took to obtain your current loan. You should determine the features you want in advance, whether your goal is to secure a lower interest rate, switch to a fixed-rate mortgage, or extend the loan term. You should choose a qualified lender that offers the terms you’re looking for and obtain three or four loan quotes before making a decision. You will need to submit a loan application and review the loan terms and associated fees once you are approved.

Reasons to Refinance Your Mortgage

A modified loan can improve your financial situation in several ways, and refinancing may be a sensible option if any of these reasons meet your personal circumstances. You can typically achieve lower and more manageable monthly payments by refinancing your mortgage to a loan with a lower interest rate or a longer term.

When Not to Refinance Your Mortgage

Refinancing can also have a negative financial impact if you do not carefully assess the restructured loan terms. You may not secure a lower interest loan if your credit scores are poor at the time of application, or if market interest rates have risen since you took out your original mortgage.

Should I Refinance My Mortgage?

In general, refinancing your mortgage is a good move when you will genuinely benefit financially from a new loan. It may be a bad move if you will waste money unnecessarily or increase risk when refinancing. Therefore, compare the pros and cons, analyze savings over time, and the payback period to determine if it’s worth the cost.

How Much Do I Pay to Refinance My Mortgage?

Refinancing a mortgage is not free. You will pay various fees to the new lender and other professionals to compensate them for processing the loan. Some refinancing costs include: application fees, origination fees, appraisal fees, inspection fees, and closing costs. Refinancing costs can amount to 3-6% of the remaining loan. The lender may not require you to pay these fees upfront if you qualify for “no-cost refinancing,” but you will pay them through a higher interest rate over the life of the loan.

Source: https://www.thebalancemoney.com/mortgage-refinancing-315688