Mortgage refinancing is the process of paying off one loan with the proceeds from a new loan secured for the same property. Refinancing is usually done to secure better loan terms than your current loan, like a lower interest rate or a lower monthly payment.
Other reasons you may want (or need) to refinance include:
- Your financial situation has changed, which creates the need for a lower monthly mortgage payment.
- Your marital status has changed.
- You want to tap into the equity of your home to pay for other large expenses.
There is no rule that states how soon you can refinance. However, whether or not you will be approved for a new home loan varies by your current financial situation and lender requirements. (Some lenders will not refinance a loan issued within the last 120-180 days, so check with your current lender for an exact timeline.)
TIP: As a homeowner looking to refinance, the question you should ask yourself is not if you can, it’s if you should.
Traditionally, it’s been said that refinancing is beneficial if you can reduce your rate by at least 2%. However, some lenders say that even a 1% savings is a great enough incentive to consider refinancing your home. Currently, rates are low, so now might be the best time for you to refinance. (We always recommend speaking to a mortgage professional first.)
Is Refinancing for Me?
In most cases, the benefits of refinancing outweigh the negatives. However, if you’re only a few months into a brand-new mortgage, you may face additional costs or fees that negate the drop in your interest rate once all is said and done.
Don’t Forget About Closing Costs
If you decide that rates look great, and you’re ready to pursue a refinance, it’s important to remember the other fees involved in a home loan process. Even with a refinance, you’ll have to pay closing costs, just like you did on your original mortgage.
On average, refinancing closing costs can range from 3-6% of your loan amount, depending on your lender.
With all of these factors in mind, it doesn’t hurt to refresh on the benefits of a refinance. Just a few are:
- Lower interest rate
- Clear your debt in less time (from a 30-year mortgage to 15-year)
- Build equity at a faster rate (with a shorter loan)
Are you considering refinancing your current loan, but you still have a few questions? Call, Text or Email Tucson’s Home Loan Experts Today! The Polder Group at Summit Funding.