Just when you thought all the paperwork was behind you after you closed on your home, now the opportunity for refinancing has come up.
How do you refinance a home? Is this option right for you? Should you do it now, or hold off a little longer? Can you refinance more than once while you are paying your mortgage?
There are a lot of factors that could impact your decision to refinance, so before you jump into this process, be sure you know what you’re in for.
Why refinance your home?
The most common reasons people choose to refinance their mortgage is to lower their monthly mortgage payments or reduce the total amount of interest they will pay.
There are a couple ways to accomplish this. The first is to reduce the term of the loan and get a lower interest rate. While this won’t reduce the amount paid every month, it will reduce the final costs of the home. The other method is to extend the length of the loan, which can reduce the monthly payments. However, it will likely increase the amount of interest you’ll have to pay over the lifetime of the mortgage.
There are a couple other reasons to refinance, though. You could, for example, use this opportunity to switch from an adjustable-rate loan to a fixed-rate loan. Other homeowners choose a cash-out refinance, which is a way to borrow against the value of the home in order to pay for renovations or remodeling.
How does refinancing a home work?
Refinancing is simply the process of getting a new mortgage that replaces the original one so that you can get a better interest rate or better term of the loan.
The first loan will be paid off so the second loan can be issued in its place.
As you may have guessed – after having done all the paper work when you bought the house – this process can get involved and will require even more paperwork.
If, however, the economic conditions are right, it may be worth the effort.
What should you know before getting started?
In some ways, refinancing is just like getting your mortgage in the first place. There are a number of things you should know before you make any final decisions.
Start by checking on your credit score. If you go into this process with a poor credit history, you may not be able to get the refinancing that you had hoped for.
Also, be sure that you know your home’s current value. This will figure highly into the rates and terms you are likely to receive.
How much does it cost to refinance?
There will likely be a number of additional fees with a refinance. There is not exactly a set amount, though, because it may be based on what you need, where you are, and which services you use.
Some of the common costs include (but may not be limited to): appraisal fees, origination fees, application fees, underwriting fees, title research and insurance, a processing fee, tax transfer fees, and credit report charges.
When you begin this process, the lender should help you through this process so you should know exactly what to expect.
And, let’s be clear: there will be some costs. If the lender is trying to sell you on a supposedly no-cost refinancing, just be aware that those costs are probably just being rolled into your ongoing loan.
How often can you refinance your home?
So, let’s say you just refinanced your home because you thought you had the best rate possible. Then, after a year or so, the rates change again and you start to wonder if maybe you couldn’t take advantage of these changes.
But you’ve already refinanced once. Does that mean you’re stuck with your rate, now?
No. There are, in fact, no limits to the number of times you can refinance your home. However, some lenders won’t want to work with you if you’re constantly trying to change your mortgage and may require you to wait a while before refinancing again. If you’re looking for a cash-out refinance, in particular, you will likely need to wait a certain number of months since your last refinance.
How soon can you refinance a mortgage?
If you have an FHA loan, then you will need to wait at least 6 months before you can refinance through the FHA streamline program. Beyond that, though, there really aren’t any rules or regulations that limit when you can refinance.
However, just because you can, that doesn’t necessarily mean you should. And there could be other factors – like a low credit score – that may dictate when you can actually refinance.
Is refinancing the right choice for me?
While we can help you examine all the variables associated with this question, only you can make the final decision.
It really comes down to whether or not refinancing will help you reach your goals, and whether the savings outweigh the costs associated with refinancing.
If you have an opportunity to refinance and lower your monthly payments or pay off your mortgage faster, then this might be the right choice for you.
If you still have some questions about this process, be sure to contact Joshua Downey today and we’ll be happy to help as much as we can.