REFINANCING A HOME

Is Refinancing Right For Me?

Refinancing can save you money, especially when interest rates fall below your current mortgage loan interest rate.

What is refinancing?

Refinancing is when you pay off an existing mortgage with a new mortgage loan. Refinancing could save you thousands of dollars in interest payments or allow you to build equity in your home faster by paying the mortgage off in a shorter amount of time. When considering refinancing, you should consider how much you will save. If you can't foresee any substantial savings on your mortgage, then refinancing may not be right for you.

What to ask when deciding if refinancing is right for you:

• Are interest rates for refinancing lower than your existing rates?
• Can you afford the closing costs associated with refinancing?
• What effect will the refinance have on your payments and your current home equity?
• What are your goals for refinancing? Lower payments, pay mortgage off faster, cash for project, etc.
• How much money do you need for your project?
• What are my other options?

Benefits of refinancing

• Lower your interest rate. Often, the interest rate on a refinance will be lower than your current interest rate.
• Reduce your monthly payments. Refinancing your mortgage when interest rates are low can help you save money.
• Quicker pay off of your current mortgage. Refinancing your mortgage can help you save thousands of dollars in interest charges over the life of your loan, and it helps build equity in your home faster.
• Use the equity in your home. Refinancing your first mortgage for more than what you currently owe allows you to take cash out of your property. You can use the cash you take out of your property for a home improvement project, to take the vacation you have always dreamed about or anything else you choose.

Cost of refinancing

When considering refinancing, you need to keep in mind that you will have to pay many of the same fees and closing costs that you paid when financing your first mortgage.

Considering that lenders fees may vary widely, you should shop around and find the best deal for you. If you’re trying to reduce your monthly payments, you should try to recover your refinancing cost within two years. For example, if your refinancing fees are $2,000, then after two years your savings in monthly payments should at least equal to $2,000.

Lender fees for refinancing

• Appraisal
• Credit report
• Processing
• Underwriting
• Administrative

Third-party fees for refinancing

• Escrow
• Document preparation
• Title insurance
• Notary
• Attorney
• Recording

Beware of a prepayment penalty fee that may offset any savings you might gain. Before you refinance, check your current mortgage loan papers to see if you have a prepayment penalty provision and if it includes any fees.

Now that you have decided to refinance, the next step is to choose the type of loan that best suits you.

Read About Your Loan Options