So you’ve bought your house. You’ve remodeled, redecorated, settled in and made it a home. There’s nothing else to do, right? Well, If you’ve been paying your mortgage for a few years or even 20 you might want to consider refinancing.
There are a few reasons to refinance your mortgage—maybe interest rates have dropped since your initial loan or you want to shorten your loan’s term. If you took out an adjustable-rate mortgage, you may want to switch to a fixed-rate one in order to lock in today’s low-interest rates.
There’s also “cash-out” refinancing, which allows you to tap into your home’s equity by taking an additional loan against the portion of your house you’ve already paid for. If you need some extra cash to remodel and you figure it will add to the value of the home, this might be a viable option. But be careful. You’ll be increasing the length of time it will take to pay off your home and ultimately paying more in interest and fees.
Refinancing isn’t a walk in the park. It’s a complicated process that has some hefty fees associated with it. Before you decide to take the plunge, you may want to consider a few things. First, you’ll want to make sure you own at least 20% of the home. Many banks won’t even consider refinancing until you do. You’ll also want to work on improving your credit before you refi. A better credit score means a better mortgage rate. Next, you need to ask where you’ll be in five years. If you plan on sticking around for a while and seeing your mortgage through, refinancing makes sense. But if you’re thinking about selling soon, you might not be able to recover the fees just through interest savings.
If you’ve calculated the numbers and decided it makes sense to refinance, you’re ready to start shopping for mortgages. Remember, when you refinance you’re applying for a NEW loan, which means you need to be prepared to verify your income, your assets, your debt-to-income ratio, your credit profile, and your job history. You’ll need to get your home appraised to make sure it’s still worth enough to support the loan. And, finally, you will have to pay a fee of about 2% to 3% of the new loan.
Mortgage refinancing can be a long and difficult process, but at least you can say Now I Get It.