As a mortgage holder, refinancing can help you accomplish many of your goals by paying off your original loan with a new, more advantageous loan of your choosing. Homeowners have used these loans to lower their interest rates, pay off mortgages more quickly or turn home equity into cash. So how do you know if refinancing is the right decision for you?
Understanding the ins and outs of the process may help you arrive at an answer. If you’ve been thinking about refinancing, here are six things to know before you call a lender:
1. Refinancing is a process
You’ll be happy to know that refinancing doesn’t involve as many moving parts as a home purchase – especially with a lender, like Rocket Mortgage®, taking care of all the details. But there are certain steps to be aware of, as well as a timeline (typically 30 to 45 days).
Just like with your initial home loan, you’ll need to qualify. Your lender will look into your income, assets, credit history and more, so expect to show documents like pay stubs and bank statements to make your case.
Your home will also be appraised, so make sure it’s in the best possible shape. Some cleaning and landscaping can go a long way. The more prepared you are, the quicker you’ll complete your transaction and hit your refinancing goal.
2. Time is of the essence
The past ten years have seen steadily low interest rates, and experts predict this trend will continue. For borrowers, locking in low monthly payments along with a low rate is a healthy goal to have. There’s a chance to see substantial savings over the life of your new loan if interest rates go up.
Consider the differential between your original mortgage’s interest rate and the new one that would come with a refinancing loan taken out today. That difference can amount to more money in your pocket, both now and in the decades to come.
3. There are many reasons to refinance
Your potential new interest rate will be a crucial factor as you make your decision, but it’s not the only reason to refinance. As you calculate a new rate’s impact on your monthly payments, the term of the loan is also important to consider. If you’re looking for a lower monthly outlay, a long-term loan will likely work best.
If getting the repayment process over with as soon as possible is more important to you, you may end up locked into a higher interest rate. Before you sign your name, consider where your finances will be as the term of the loan continues.
Other reasons to refinance include changing your loan type, cashing out your equity, or even removing a name from your mortgage (in the case of a divorce, for instance).
4. You’re not tied to your existing lender
Since part of the refinancing process involves paying off your existing mortgage, it gives you a clean slate before your refinancing loan’s terms are activated. Because it's a new loan, you won’t need to use the same lender you originally had. This means you can shop around for the terms that work best for you.
You won’t have to make a switch, of course, but it can be advantageous if your potential new lender offers better rates, lower fees or other perks.
5. You can reinvest in your existing property
Those who refinance to cash out equity often reinvest that new money back into the home itself. Making improvements, renovations and additions will not only enhance your living situation in the present but add extra value to your home if you decide to sell.
Some homeowners even put their refinancing savings towards an investment property, leveraging favorable interest rates into an expansion of their homeownership portfolio.
6. The decision is yours alone – so make it an educated one
At the end of the day, refinancing is as personal a decision as buying a home to begin with. There’s help to be had, including plenty of no-obligation tools to help you explore your options, but only you can take the plunge. The Rocket Mortgage® refinance calculator can give you an estimate of monthly payments and sketch out what your loan’s terms might look like.
You’ll enter the remaining balance of your current mortgage, the value of your home, your income and a few other bits of information, and the results can help you decide whether refinancing is a good idea.
Considering refinancing your mortgage? Learn more about your options at RocketMortgage.com.
Rocket Mortgage, LLC; NMLS #3030;www.NMLSConsumerAccess.org. Equal Housing Lender. Licensed in 50 states. For additional information, please visitRocketMortgage.com.
