Refinancing can be a great way to lower your monthly mortgage payment and save money, but it may not be the best choice for every borrower. It can be an ideal solution for homeowner’s who are struggling to make their payments. It helps to understand the process of mortgage refinance to decide if refinancing is right for you. Following are a few questions commonly asked by homeowners looking to refinance a mortgage.
What is refinancing your mortgage?
When a mortgage is refinanced, it is replaced with a completely new mortgage loan. The new mortgage replaces the existing one. The refinanced mortgage usually comes with a lower interest rate and a new monthly payment. Borrowers have the options of choosing 30, 15 or 20 year terms.
What are the advantages of refinancing?
There are many reasons why homeowners choose to refinance their mortgage loans. Often refinancing is done to lower interest rates or mortgage payments, while other homeowners choose to refinance in order switch from adjustable to fixed-rate loans. If you have enough equity in your home, you can take out a home equity line or credit, or a cash out refinance loan to have access to cash.
How much does refinancing cost?
Refinancing can provide full funding, but it is not free. Borrowers will still have to cover the closing costs, which can be up to 5% of the mortgage loan amount. If you have limited funds for closing costs, the fees may be waived with the addition of a higher interest rate. Another way to cover closing costs is to roll them into the mortgage, adding to your total balance.
Do I need good credit to refinance my mortgage?
Since refinancing creates an entirely new mortgage, you’ll have go through the application process again from the beginning. The lender will verify your income and check your credit to ensure that you meet all the underwriting requirements. If you aren’t able to get a conventional refinance because of your credit, you may explore other options for homeowners’ with limited resources like FHA loans. For FHA home loans, lenders require a minimum credit score of 620.
Do I need to use the same lender?
There are no regulations in place that require borrowers to refinance their mortgage with the same lender, but there are advantages to doing so. While you should always compare rates and loan options, refinancing with the same lender might save you money. Your lender may want to keep your business and offer you a low rate and cover some of the closing costs.
