The American Dream isn’t cheap. The average monthly mortgage payment is $1,030 in the United States, and that brings the mortgage costs for a typical household to at least $12,360 over the course of a year. Although homeowners may feel as if their mortgages are carved in stone as as result of the high payments and lengthy durations they have to endure, in reality, homeowners can refinance their mortgages as a way to obtain more favorable terms.
Remortgaging can be a powerful financial tool, and according to some estimates, homeowners are losing as much as $13 billion per year by not remortgaging. Don’t leave your windfall on the table: Learn whether or not remortgaging is right for you!
What Is It?
In short, mortgage refinancing allows homeowners to replace their original or existing mortgages with a new loan, and this new loan pays off the amount remaining on the old mortgage. The real attraction of mortgage refinancing, however, is that it gives homeowners the opportunity to secure new terms and a new interest rate favorable to them on their new loan. As a result, homeowners can reduce their monthly mortgage payments.
So now that you understand the basics of mortgage refinancing, you may be wondering: How do I refinance my mortgage?
Since refinancing is essentially the same as applying for a new mortgage, you’ll want to begin by researching your financial situation. Check your FICO credit score: Lenders will use this to determine whether or not you’re qualified for the loan, and it will also influence the interest rate they offer you. If your credit score is too low to qualify you for a loan or if it’s too low for you to acquire a more advantageous interest rate, then you may want to put off refinancing until you can shore up your financial position.
Additionally, you’ll want to check the value of your home and your equity—the amount that you’ve paid off on your original mortgage. Lenders will require you to have a certain level of equity relative to the value of the home. For example, if a lender requires you to have 10% equity in order to refinance, and your original mortgage was in the amount of $200,000, then you’ll need to have paid at least $20,000 on the original mortgage in order to refinance.
Once you feel comfortable with your credit score and your equity, it’s time to start applying for new loans. Shop around to different lenders and see who can offer you the best interest rate and terms. Lenders will ask you for a range of documents to determine your eligibility for a new loan and the terms they should offer—such as your tax records and bank statements—so you should have those ready at hand.
If you have a few offers for refinancing, take a look at them and pick the one that’s right for you and your family. Then, enjoy the savings on your new mortgage!