Getting a mortgage on a home is usually a pretty straightforward process. However, what happens when you want to change that mortgage? In most cases, you’ll need to refinance so you can get into a different mortgage that has an interest rate and terms that are not the same as what you previously had. You may or may not work with the same lender, but the process is one that it’s best to understand before you get started. So what is refinancing? What can it really offer you? Those are the kinds of things you’ll want to know, so you can make the best decision for your financial needs. A re-fi, as it’s often called, isn’t right for everyone, and some people won’t qualify for one even if they’d like to make changes, so working with your lender to understand everything before proceeding is the way to go.
1. What does refinancing really offer?
For most people, refinancing offers the chance to have better mortgage terms and a lower interest rate. That can mean payments that are significantly less than they were originally, keeping more money in your pocket every month. It’s a good feeling to have a lower amount of money going out each month to pay for your house. That’s not the only thing refinancing is good for, though. It can also be used to help someone get into a shorter mortgage term, or to give them some of their equity in the form of cash that they can use to make repairs or improvements, go back to school, travel, or do all sorts of other things. Having the option to use that equity in their home, or allowing them to have a lower payment, or popular reasons for refinancing.
2. Who benefits from refinancing?
In refinancing your home, you’ll find that there are benefits and risks. The people who benefit the most from refinancing are often those who have high interest rates on their current mortgages. While refinancing comes with some closing costs and fees, it can also lower your payment an appreciable amount. For people who can get a mortgage that’s at least one full interest percentage point lower than what they have now, the benefits of refinancing generally outweigh the costs. That can mean a savings of potentially hundreds of dollars every month, depending on the size of the mortgage and the difference in the interest rate. Naturally, that’s well worth considering. Over a 30-year mortgage, the cost savings can be significant, and that money can be used for other things.
People who want to pull some of the equity out of their home and use it for something else can also benefit from a refinance. They may be able to get tens of thousands of dollars to redo part of their home or pay off other debt. They may want to travel or get more education. There are all kinds of things they can do with that money, and if they previously had a high interest rate they may be able to get one that’s much lower. That way their payments won’t go up very much, even though their actual mortgage amount will be larger. It’s well worth considering if you have equity that’s just sitting and you want to do something with it, because it can help you accomplish your dreams and still keep your house payment at a realistic level.
3. Do you need to refinance?
Whether you need to refinance is an important question. Some people are getting behind in their payments or having trouble keeping up because their interest rates are high. If you’re in that situation and rates are much lower now, you may want to get your house refinanced before you experience any further financial trouble. That can help you save more money for the future, stay caught up on your bills, and have a mortgage you feel good about. If you’re already in financial trouble you may find it harder to get refinanced, but there are options like the HARP program that can help you work through any problems with your lender and get your mortgage adjusted to one that works for your needs and is realistic for your situation.
4. What are the reasons for refinancing?
There are many reasons for refinancing. Most commonly, people want lower interest rates and better terms. Less commonly, they want to pull out their equity and use it for something else. Both are valid reasons to refinance, and what people might use that money for can be almost anything. There are plenty of great ideas around the house and in other areas of life that can benefit from a little extra money, and if you can get it at a great interest rate a refinance might be the right choice for you.
5. How can you refinance?
When you want to refinance your house, it’s time to talk to your lender. You don’t have to go through the same lender you have your current mortgage with, but it’s a good place to start if you’re happy with them overall. If you can’t get a good rate or you don’t like the way your mortgage has been handled, you may want to talk to other lenders about a refinance. That way you can consider your options and get the best opportunity to refinance with a rate and terms that really work for your needs.
