Refinancing 101
What is it? When you refinance your home loan, you are essentially swapping your current mortgage for a new one. It’s a lot like trading in a car – you are basically trading in the vehicle which carries your property debt for one with new features and options. In this situation the features and options are things like the interest rate, length of the loan, type of loan (fixed or adjustable), etc.
Why refinance? Refinancing can help you lower your monthly mortgage payment, or to obtain a large amount of cash to pay for a big expense. For more details on the reasons why to refinance, see the related article – 6 reasons to refinance.
Is there ever a reason not to refinance? Never say never, but refinancing rarely makes sense if you plan on being in your home for less than three years. Refinancing also may not make sense if the interest rate offered for your refinanced mortgage is significantly higher than your current rate.
How do I know if refinancing is right for me? The key thing to know is whether the savings generated by refinancing is greater than the cost to refinance (generally 2-6% of your loan amount). You’ll want to crunch some numbers. The first thing to do is dust off those old mortgage documents. Check your interest rate and the length of the mortgage (called the term -- usually 15 or 30 years) and if your lender is going to charge you a fee for paying off your mortgage early (called a pre-payment penalty). You can then use the GetSmart refinance calculator to see if refinancing could work for you.
How does refinancing work? Refinance works just like a purchase mortgage, only simpler, since you don’t have to coordinate your closing around a move date. The lender will take your application and check your credit. Often you can get a conditional approval right away. The lender may order an appraisal of your home (hopefully your home’s value has increased) and request documentation from you (like pay stubs and account balances). Then the lender will schedule your closing, and you are on your way to an exciting new mortgage. Ok, not quite as exciting as a new home, but refinancing can be a smart financial decision.
Get started. Use our simple two-minute form to get connected to up to 5 mortgage lenders, who will help you get the process started and answer any questions you may have.
Get Started Now!
- Check Your Credit Report & Credit Score now!
- Start a Loan Request
- Sign up for our News Feeds
- Have Questions? Call 1-800-GET-SMART (1-800-438-7627)
