Refinancing Your Mortgage
After you’ve owned a home for a while, you may start wondering if there’s a way to make your monthly payments lower, decrease your interest rate or otherwise improve your mortgage situation. Refinancing a mortgage means taking out a new loan and paying back the original loan.
How it Works
When you refinance, you must go through a similar process as you did for obtaining your original mortgage, though likely with stricter qualifications. You may be required to have a higher credit score or a certain percentage of equity in the home to qualify for a refinance. Home equity is the difference between the amount you owe on your current mortgage and the value of your house.
The first step is to consider your options—shop around to see which lenders offer the most favorable refinance terms. Expect to pay closing costs to refinance. Things to consider include the interest rate, closing costs, points, possible prepayment penalties and loan term.
You can choose to change the length of your mortgage repayment period by switching from a 30-year to a 15-year mortgage, or vice versa. You can also move from an adjustable rate mortgage (ARM) to a fixed-rate mortgage. You can even choose to refinance for an amount greater than the amount you still owe on your home. This option, called cash-out refinancing, is useful for those who want to remodel or who just need money for a large expense such as their children’s education.
Should you Refinance?
Assuming you qualify for a refinance, it may or may not be a good option for you. You should consider refinancing if:
- Interest rates are at least 1 or 2 percentage points lower now than they were when you took out your mortgage loan
- You have an ARM whose interest rate will be adjusting soon
- You have sufficient equity in your home
- You want to borrow equity from your home to fund a large expense
If you decide that a refinance is the most prudent option for you, the next step is to find out if you qualify. The process of applying for and obtaining a refinance is similar to a mortgage application, so be prepared to provide your mortgage lender with information on your credit, income, taxes and more. If done right, a refinance can be one of the easiest ways to save money.
You can count on First National Bank for competitive interest rates and some of the lowest closing costs around. Contact one of our mortgage lenders today for current interest rates or to learn more about our mortgage process. Click here to learn more about our mortgage services or to contact a mortgage lender today.