Whether you want to lower your mortgage payment or speed up the repayment of your loan, mortgage refinancing may be an option to consider. Before you pick up the phone and start dialing your home insurance provider, here’s what you need to know about this popular home loan product.
How Does Mortgage Refinancing Work?
When you purchase a home, you get a mortgage loan to pay for it. This money that you borrow goes to the seller. When you refinance your mortgage loan, you will essentially be getting a new mortgage. But instead of the loan amount going to the seller, it will be used to pay off your current loan. Mortgage refinancing requires you to submit an application, go through the underwriting process, get approved for the loan, and pay the closing costs. The steps that you need to take to refinance are quite similar to what you had to do to get your original loan.
Why Should You Refinance?
To lower the monthly premium
If you want to pay less every month, mortgage refinance is the way to go. All you’ve got to do is either look for a new loan with a much lower rate of interest or one that has a longer term. Keep in mind that if you extend the term, you will end up paying more interest over the course of the loan term.
To Tap Into the Equity
Many people choose to refinance in order to borrow more than what they currently owe on their current home loan. This process is called a cash-out refinance. People usually get a cash-out refinance and a lower rate of interest at the same time.
To Repay the Loan Faster
When you refinance to a loan with a shorter loan term, you can reduce your repayment term. As a result, you’ll be paying less interest over the course of the loan term and saving money. Keep in mind that when you do this, you’ll generally end up with a higher monthly payment.
To Get Rid of Mortgage Insurance
If you have an FHA loan, you cannot get rid of the mortgage insurance unless you refinance into a non-FHA loan.