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A mortgage refinance replaces your current home loan with a new one. Often people refinance to reduce the interest rate, cut monthly payments or tap into their home’s equity. Others refinance a home to pay off the loan faster, get rid of FHA mortgage insurance or switch from an adjustable-rate to a fixed-rate loan.
Let’s consider some important initial aspects of refinancing a mortgage — and then run through the process step by step.
When you buy a home, you get a mortgage to pay for it. The money goes to the home seller. When refinancing a home, you get a new mortgage. Instead of going to the home’s seller, the new mortgage pays off the balance of the old home loan.
Mortgage refinancing requires you to qualify for the loan, just as you had to meet the lender’s requirements for the original mortgage. You file an application, go through the underwriting process and go to closing, as you did when you bought the home.
Before you begin, consider why you want to refinance your home loan. Your goal will guide the mortgage refinancing process from the beginning.
Reducing your monthly payment is usually the goal. And it’s tempting to refinance with another full 30-year term to. But that means you’ll end up taking even longer to pay off your house and paying more interest over the long run.
Instead, you can ask the lender to match your remaining loan term. For example, if you’ve had a 30-year loan for three years, you have 27 years remaining. You can tell the lender to set up the payments so you repay the refinanced loan over 27 years instead of 30. This way, you reduce the interest you pay over the life of the loan. This is at work.
Once you’ve decided to refinance, it’s time to crunch the numbers. Using a can help you shop for the best mortgage.
You’ll need to know (or make some educated guesses about) your new interest rate and your new loan amount.
After you input the data, the tool will calculate your monthly savings, new payment, and lifetime savings, taking into account the estimated costs of refinancing your home.
It also will show your point. Getting a mortgage generally requires paying fees, often amounting to thousands of dollars. It takes a while for a refinance to break even — that is, for the accumulated monthly savings to exceed the.
Working with a refinance calculator will give you a good idea of what to expect. Even better, when you have a few estimates from mortgage lenders you can enter the terms they offer you into the calculator to help determine which one offers the best deal.
Now for a little legwork — or more likely web work and phone calls. You want to shop for your and get a Loan Estimate from each lender. Each potential lender is required to issue the estimate within three days of receiving your basic information.
The is a simple three-page document that details the loan terms, projected payments, estimated closing costs and other fees.
Compare the loan details from each lender and decide which one is best for you. This is a good time to work that mortgage refinance calculator.
Ready to tackle the refinance process? Go!