When you refinance a property, you are paying off your existing mortgage so that you can take out a new one. You can cut your monthly payments and save interest by refinancing at a lower rate of interest. You can also turn the existing equity in your home into cash.
Before you get too involved in the refinancing process, it is important that you educate yourself and give careful consideration to a number of important questions. Use the information provided below to help you learn more about the refinancing process.
Thinking about refinancing your mortgage but feeling unsure about the process? Are you wondering if you can lower your monthly mortgage payment, but aren't sure if it would be worth the cost of refinancing?
The refinancing process is similar to the one you followed when you got your first mortgage. In a nutshell, refinancing involves paying off your existing mortgage and taking out a new one. Your new mortgage could be at a more attractive interest rate, for a different term, or an entirely different type of mortgage.
A good place to start when considering whether to refinance is to ask yourself several questions. How long do you plan to stay in your home? Is the current mortgage interest rate more attractive than the one you have? How much equity do you have in your home?
You may want to take advantage of lower interest rates to reduce your monthly mortgage payments or you may want to build equity in your home faster by refinancing to a shorter-term mortgage. Ask your lender about the interest rates they offer, as well as any costs associated with refinancing.
You may want to start your search for a new mortgage with the lender you used the first time. Sometimes, this lender will give you a better deal to keep you as a customer. You can also get refinancing information from a real estate sales professional you've worked with in the past.
Another reason to refinance is to use the equity in your home - perhaps for a major purchase or a child's education. You've been building equity in your home since you first started making monthly mortgage payments. Part of your payment was used to pay principal - helping you build equity - and the rest was used to pay such items as interest, taxes, and insurance.
Often referred to as a "cash-out" refinance, drawing on the equity in your home provides an easy way to get cash you may need for other purposes.
Refinancing is similar to applying for an original mortgage, so you can expect to pay similar costs. Some of these may include:
- The application fee, which covers the lender's cost to process your application.
- A fee for a search of the public record of ownership of your property.
- A title insurance policy, which protects the lender for any loss due to a discrepancy in the title. (You may be able to have your settlement company reissue your current title policy at a reissue rate, saving you some of the cost to have this service performed.)
- A fee to have your property re-appraised.
- A new survey of your property to confirm that no changes to the land or physical structures have been made that would affect its potential sale.
- A loan origination fee, which covers the lender's work in evaluating and processing your loan. It is usually expressed as a percentage of your loan.
- Other fees, depending on the type of mortgage refinancing you are seeking.
Here are several important questions you can ask yourself before beginning the refinancing process and reviewing your mortgage financing options with your lender.
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