With the ever increasing and decreasing status of the housing market, some homeowners have found themselves with the inability to keep up with house payments. However, there have been mortgage rates set in place to allow affordable ways for homeowners to keep their homes. These low rates are extremely beneficial if you find a need in refinancing your mortgage. But, is refinancing your mortgage really a good idea? Read on to learn more about refinancing your house and if that is the best option for you to solve you mortgage problems.
Refinancing? What Does That Mean?
If you think or if someone has told you that all you have to do is consult your mortgage lender, sit down to discuss a few terms, and sign a new mortgage in refinancing your mortgage, you are dangerously mistaken. The process requires a bit more time and effort on both parties—you and your lender.
Refinancing your mortgage means that your current loan is completely replaced with a brand new mortgage loan rate. This is possible with either you current lender or a brand new lender. Either method you choose, you will find yourself with a completely different mortgage than you had before. This also means that the terms of your mortgage loan is different as well. Before you jump into refinancing your mortgage, consider that everything will change—the loan rate, possibly your lender, and the terms of the loan.
Refinancing at the Best Time
Now that you know the basic definition of what refinancing your home is, the next step in refinancing your mortgage is to know when the time is right to do so. Ask yourself, is right now the right time for me to take out a new mortgage on my home? In determining an answer, you must consider a variety of things:
- Are You Satisfied With Your Current Mortgage Rate? Depending on when you purchased your home, your current rate may be higher than one you could receive at the time of deciding on refinancing your mortgage. This is a great reason to choose to refinance your home.
- Do You Have An Adjustable Rate Mortgage? Homeowners who currently have an adjustable rate mortgage (ARM) may find it more beneficial to switch to a fixed mortgage rate that could be lower than an ARM.
- Has There Been A Decrease In Your Credit Score? Credit score is a big factor in determining mortgage rates. That means that your credit score will be a factor in refinancing your mortgage as well. If you credit score has fallen since you have gotten your current mortgage, refinancing could get you a better rate as well.
After asking yourself those questions, you can decide when to refinance your mortgage. This process involves similar steps that were taken when you bought your current home. You will be required to provide your income figures and assets. Your credit score and credit report are also considered as well. Do not forget about closing costs and fees that are required and expected to be paid at the start of the new loan. Considering this aspect, you may find that refinancing your mortgage is not a good idea because it will cost you more money that keeping your current loan. However, if you plan to stay in the home for a time that will make up for the closing fees, refinancing your mortgage is a good idea.
The Process of Refinancing
If you have now determined that refinancing your mortgage is the best option for you, now you can begin the process of refinancing your mortgage. You can expect to embark on the following journey to complete this process:
- Apply for a new loan. You can do this with your current lender or a new lender.
- Your credit score and report will be considered in determining if you qualify for the loan as well as what your new rate should be.
- Your house will have to be appraised to find what it is currently worth. Your lender will request a title report on your home and look for any liens.
- If approved for the loan, you will now sign the new loan. The earnings from the new mortgage is typically used to pay the old loan.
Sometimes, you will find that calculating all of the costs of refinancing your mortgage will put you in more financial jeopardy than keeping your current mortgage. If you are still unsure about refinancing your mortgage and if it would be a good idea, consult with a financial advisor, your lender, or a lawyer to see if that option will benefit you.
In conclusion, you do not want to jump into refinancing your home as a quick way to save money. Doing so may find you in a financial bind that would be difficult for you to come out of. Do some research, ask questions, and seek help if you are considering the process of refinancing your mortgage. You may find that the process is not worth it.