Wondering how to refinance mortgage loans? Refinancing means taking out a new mortgage to pay an existing home loan. But there's a little more involved than just applying with mortgage lenders. Mortgage refinance definition
A mortgage refinance involves taking out a new mortgage and using the proceeds from it to pay off your existing home loan. Generally, the purpose is to reduce your mortgage interest rate. However, you may also refinance to change other loan terms, such as the repayment timeline or to switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan.
Refinancing involves applying for a new mortgage with either your current lender or a different one.
You'll need to have your home appraised and qualify for your refinance loan based on your home's value, your income and credit score, and other financial credentials. Once approved, your new loan will be used to pay off your current mortgage. You'll then make your monthly payment to your new lender.
Read more about how to refinance your mortgage in our guide.
It makes sense to refinance a mortgage if:
A mortgage refinance has closing costs, so make sure paying them is worth it. If closing costs are $5,000 and refinancing saves you $150 on your monthly payment, it would take 2.8 years to break even. If you're planning to move before then, refinancing likely wouldn't make sense.
For more on why you should refinance, check out our guide.
Here's how to refinance your mortgage:
For a more complete guide on refinancing, we compiled our expert's recommendations in The Truth About Refinancing.
To refinance your mortgage:
It's a good idea to refinance your mortgage if you can reduce your interest costs and the amount you save will cover your closing costs before you plan to sell the property.
The standard rule of thumb is that it makes sense to refinance if you can drop your rate by around 1%. Sometimes refinancing is smart even with a smaller rate drop, depending on factors like closing fees and future plans.
You may also want to refinance if you can't afford your current monthly payment. You might be able to switch to a loan with a lower interest rate or longer repayment timeline that works with your budget. And some homeowners take a cash-out refinance to tap into the equity in their home.
You can generally refinance your mortgage with any lender you want. If your original lender offers the best rate and terms, secure your refinance loan from them. Otherwise, shop around and choose the mortgage lender offering the most affordable loan.
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