Mortgage refinancing is the process of replacing your existing mortgage with a new home loan that has a reduced interest rate. You can also use a cash-out refinance to access your home equity to pay off high-interest credit cards or make upgrades to your property, among other things.
Mortgage Refinancing can save you a lot of money, but it can also be one of the most expensive ventures you make. It only makes sense to get the most bang for your buck by getting a great deal.
This is how to get the best mortgage refinance rate.
Decide your goals for refinancing
If you are considering refinancing your home, you’ll need to think about what your goals are for doing so. This will help you to know how much money you may need to refinance your home, and where to get it.
Are you looking to lower your monthly house payments? Are you looking to decrease how much interest you’ll pay over the life of the loan? Are you looking to shorten the term of your loan? To eliminate PMI?
All of these are valid reasons for refinancing. But if you currently have 0% interest rates, don’t expect 0% when in refinance. Understanding what you hope to accomplish from refinancing will help determine if a refinance is right for you.
Find out if you have enough equity to refinance
Refinancing your home is not an easy process; there are many factors that go into the decision. You need to assess if you have enough equity, what will it cost you, and will refinancing actually save you money in the long run.
The difference between the value of your property and the amount of money owed on your mortgage that is known as your home equity. If you are refinancing your home, your lender will normally request a home appraisal to verify the value of your home, but you can utilize a home value estimator to obtain a general estimate of its worth.
A significant amount of equity is required for most home refinancing transactions, but the amount required varies according to your situation and the sort of loan you are taking out. In comparison to a rate-and-term refinance, you would require greater equity for a cash-out refinance.
Check your credit score
If you’re planning to apply for a mortgage refinance, it’s a good idea to check your credit score at least a few weeks ahead of time. It will help you plan well and ensure that you don’t find out that something is wrong with your credit score at the last minute.
Having a good credit score is like having a passport: it gives you access to great foreign exchange rates and interest rates. If your credit score is in the red (or yellow), we advise looking into the possibility of improving it before applying for a refinance. Your credit score can mean the difference between a refinance at 3% and one at 5%.
Put together the necessary paperwork
When applying for a mortgage refinance, you will be required to provide information that lenders can use to gauge your creditworthiness. Make sure to put together all the necessary paperwork; failure to take this step can get in the way of reaching your goal.
Keep the following documentation on hand:
• Bank statements for the previous sixty days
• Pay stubs for the previous month’s work
• Contact information for your employer(s) from the last two years
• Statements of retirement
• Other sources of income, such as alimony, child support, or Social Security, must be documented.
• Obtain a duplicate of your homeowner’s insurance policy.
• Your most recent mortgage statement.
Compare quotes from multiple lenders
If you’re looking to refinance your mortgage, it’s best to compare quotes from multiple lenders and work out the repayment numbers with a mortgage calculator. Before you do that though, you’ll need to find the lenders that offer the best mortgage refinance rates. This is easy since they advertise their rates to help you make that decision.
You can compare these quotes on several factors including interest rate, closing costs, and the lender’s reputation. The time required for the comparison process is usually much more than you expect, but if your personal situation allows, comparing quotes is worth it.
Prepare your home for an appraisal
To get the best mortgage refinance rate, your home should be ready to pass the appraisal. The appraisal process is one of the last steps in getting a lower interest rate on your mortgage.
Approval times can be as little as a few days and up to a couple of weeks, though the average is about two to three weeks. In order to speed up the process, it’s important to prepare your house for a loan inspection. This does not mean you have to do a complete remodel of your home, but there are certain elements that can have a big impact on whether or not you get approved for a refinance.
Lock in your mortgage rate
Another excellent mortgage refinancing advice is to lock in your interest rate as soon as possible. Rates on refinance loans fluctuate daily, and your rate is not guaranteed until you lock one in. A mortgage rate lock protects your current interest rate for a specified period of time – often 30 to 60 days. If you lock in your refinance rate, you’ll know exactly how much principal and interest you’ll pay at closing.
Final Thoughts
If you are thinking of refinancing then you are already on the road to getting an interest rate that is lower than what you currently have on your mortgage. This can save you thousands of dollars. Refinancing is good for people who want to take out an extra mortgage, draw some equity from their home or even consolidate some debt.
For elderly homeowners, a reverse mortgage may be a better alternative.
A reverse mortgage allows senior homeowners to cash out on their home equity without selling their homestead. Though some seniors are still unaware of the advantages of this loan, its popularity is growing among an increasing number of retirees – primarily because it is one of the most lucrative refinance options around the corner.
Mortgage refinancing and reverse mortgage are similar in the way they involve taking out a new loan to replace an existing one, but instead of the homeowner paying the lender every month, the reverse is the case, as the lender is the one to pay the homeowner. However, this debt is repaid when the borrower dies, sells the property, or permanently moves away.
