With mortgage refinance rates at historic lows, there may be no better time to refinance. Learn if mortgage refinance is right for you, and whether you can make your monthly payments more affordable.
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Your questions about mortgage refinancing
Historically low interest rates are making refinancing increasingly popular among homeowners. As such, many lenders are working hard to offer competitive rates to consumers who are interested in pursuing refinancing. Here, we’re sharing some of the best mortgage refinance companies as well as answers to some commonly asked questions to help you decide if refinancing is best for you.
What is mortgage refinancing?
When you refinance your mortgage, you replace your current mortgage loan with a new one. Your new mortgage loan can have different terms when it comes to the length of your mortgage, the type of mortgage you have, and your interest rate. It can also be with an entirely new lender. There is typically a fee lenders charge when you refinance your mortgage as well as closing costs. It’s up to the homeowner to decide if the cost to refinance is worth it for the savings they’ll potentially get with a lower interest rate.
What are the reasons to refinance?
Refinancing is appealing for a few reasons.
- Homeowners can potentially lower the interest rate on their mortgage, which could save them thousands of dollars over the course of their loan.
- Homeowners can also potentially lower their monthly payment by refinancing.
- Homeowners who have equity in their homes might be able to complete a cash out refinance. This is when a homeowner can tap into some of the home equity they’ve earned and take it out as cash as part of their refinance process. They can then use the cash to pay off high interest debt, save for a child’s college education, renovate their home, or anything else.
How do I choose the best mortgage refinance company?
When you’re ready to refinance, you’ll need to evaluate different mortgage refinance companies. Each company offers their own options fees and perks. To make the process as painless as possible, here’s what you should do:
Before you start the refinance process, first get your financial ducks in a row.
- Pull your credit report. You’re entitled to a free one from each of the three main credit bureaus every year (via www.AnnualCreditReport.com.)
- Know your credit score. Your score is a huge factor in the terms you will get from a lender.
- Shop around online. Reputable online sites can get you the most information, such as in depth reviews and any consumer complaints, in the least amount of time.
- Talk to multiple lenders. It is always a good idea to compare several offers against each other, and pick the best set of terms for you.
- Read and ask questions. The more informed you are about the process the better. Refinancing a home is a big decision and you want to make sure you’re making the right choice for you.
Do you need excellent credit to refinance your home?
Mortgage refinancing is best for those with credit scores of 750 or above because those with excellent credit will benefit from the lowest interest rates. Typically, the point of refinancing is to lower interest rates and save money, and the best way to get there is to prove to lenders that you’re a responsible borrower. You might be eligible to refinance with a less than perfect score, but it depends on the lender, the type of loan you want to get, and whether or not you have a cosigner. Again, refinancing a home is a big decision and to make sure it’s a solid financial one, it’s typically best to wait until you have a very strong credit profile to ensure you’re getting the best possible rates.
Is it always a good idea to refinance your home?
Not necessarily. For example, if you’re planning on moving soon, it might not make sense to refinance because you might not live in the home long enough to recoup your refinancing fees. Sometimes you might already have a low interest rate and it might not be worth it to go through a refinance. Some financial experts say you should only refinance if you can save at least 1% off of your mortgage interest rate, but others say as little as 0.5% less than your current interest rate could be worth it for refinancing. Whether or not a refinance is best for you will depend on your own personal finances and goals when it comes to homeownership.
How much equity should I have before refinancing?
It’s a good idea to have 20% or more equity in your home or more before refinancing. Otherwise, you might have to pay private mortgage insurance with your new loan. Private mortgage insurance is an extra payment you have to make on top of your mortgage and home insurance payments, so it’s beneficial to avoid it if you can.
How do I get started?
If you’re ready to begin the mortgage refinance process and potentially save thousands of dollars over the life of your mortgage, start by contacting one of the best mortgage refinance companies listed above. Remember, it’s best to get a quote from 3-5 refinance companies before deciding which is best for you. Additionally, pay close attention to what each offers in terms of fees, closing cost requirements, and interest rates. Lastly, don’t forget to ask questions if you’re unsure about something or need clarification. Refinancing your mortgage is a big financial decision, and it’s important to be well informed as you go through the process.