Have you been following the news of rising home values and historically low interest rates and wondering if you should refinance? First Bankers Trust is here to help you decide if refinancing is right for you with this ultimate guide. Learn what mortgage refinancing is, how it works, the pros and cons, and more!

What is mortgage refinancing?

When you refinance your mortgage, you replace your existing home loan(s) with a new mortgage loan. There are closing costs associated with refinancing, so homeowners usually only refinance for a specific reason, such as saving money over the long term with a lower interest rate or because they need to tap their equity for a large expense, such as a home renovation project.

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When is a good time to refinance your Mortgage?

Choosing the right time to refinance may involve your reason for refinancing and the financial goal you are looking to reach

If you’re refinancing to get cash out, the right time would be whenever you need to borrow money at an affordable rate to consolidate higher interest debt, pay for a home improvement project or child’s education, or any other large expense. If you’re refinancing to save money over the life of your loan, the best time is when mortgage interest rates fall to historically low levels or when you’ve improved your credit score enough to qualify for a lower rate. You may also want to refinance out of an adjustable-rate-mortgage (ARM) to switch to a fixed-rate loan after the introductory period on your ARM comes to an end. If you have an FHA loan with a lifetime mortgage insurance requirement, you can refinance into a non-FHA loan to stop paying PMI (private mortgage insurance).

Is a mortgage refinance right for me?

Explore the questions below to help determine how refinancing your mortgage fits alongside your needs.

Answer the following questions to figure out if a refinance is the right move for you right now.

Do you have enough equity in your home to refinance?

To calculate your home equity, subtract your current mortgage balance (as well as any home equity loans or lines of credit you may have) from the estimated market value of your home. Your lender will conduct a professional appraisal during the course of your mortgage refinance application, but for now you can use the market estimate on any real estate site to calculate your equity.

Feel free to contact us if you have questions about your home equity and are interested in refinancing.

What is your goal with a refinance?

Since there are a variety of new mortgage loans and types of refinances to choose from, it’s best to have a specific goal or purpose in mind before you start the application process. If you’re not sure which type of mortgage refinance is best for you, our lenders can help you decide.

Do you know your credit score?

Even if average rates are historically low, you’ll still need a great-excellent credit score to qualify for the best rates. Check your credit score and credit report before applying for a refinance to make sure there are no errors you need to correct or steps you need to take to raise your score before applying for a refinance.

Benefits of mortgage refinancing

Learn about the potential benefits of refinancing your mortgage to decide if it’s right for you.

  • Pay off your loan more quickly by shortening your loan term.
  • Lower your monthly payment by eliminating PMI, lowering your interest rate, and/or extending your loan term.
  • Get a lower interest rate on your mortgage.
  • Take cash out to consolidate other debt, renovate your home, or pay for another major expense.

The downside of mortgage refinancing

On the other hand, you should consider these potential downsides before making a decision.

  • You’ll need to pay closing costs, just as you did with your first mortgage.
  • A title search and title insurance may be required by your lender when you refinance.
  • You’ll likely have to pay for a professional appraisal during the loan application process.
  • Origination and application fees may be charged for a refinance
  • If you don’t have enough equity in your home, refinancing would come with the cost of private mortgage insurance. This could be new to you when refinancing if your home decreased in value enough from the time of your original purchase of the home, so it is something important to make sure you are aware of.

How to refinance your mortgage

5 Tips for Refinancing Your Mortgage

Follow these tips for a smooth refinancing process!

  • Stay aware of your credit score and how it could impact your mortgage refinance.
  • Know how much equity you have in your home and how that plays a part in refinancing.
  • Calculate your estimated closing costs when planning to refinance.
  • Gather your supporting documentation such as pay stubs, tax returns, and more.
  • Set yourself up for appraisal success by boosting your home’s curb appeal and interior. For example, you could buy flower pots to set on your front steps, do a deep clean of the inside, etc.

Mortgage refinancing FAQ

Find answers to your refinancing questions and take this list to your lender as well to make sure you cover all the relevant ground.

What types of refinances are there?

The two primary types of mortgage refinance are rate-and-term refinance, which makes changes to your interest rate and/or loan term, and cash-out refinance, which allows you to refinance for more than you currently owe on your mortgage and get the difference back as cash.

How does my current equity in my home impact my refinancing options?

If you do not have enough equity in your home, your refinance options will be more limited (for example, you can’t do a cash out refinance), but a rate-and-term refinance may still be possible—contact us to discuss your situation!

How would refinancing affect my monthly payment?

If you do a cash-out refinance, your monthly payment will likely be higher, as your mortgage balance is now higher. Changing your loan term can also affect your monthly payment, as well as factors such as getting rid of PMI.

What can I expect regarding closing costs?

Generally, the closing costs on your new mortgage will be similar to what you paid for your first home loan. Your lender will provide a breakdown of closing costs prior to closing day so you understand what you’re paying for and how much you need to bring.

Why consider refinancing?

If any of the potential benefits of refinancing appeal to you, consider whether the closing costs are worth the benefits/savings you’ll receive. If you plan to stay in your current home for the long-term, refinancing may be a great option for you.

Check your mortgage rate today!

Wondering if you could save money by refinancing your mortgage with a lower interest rate? Contact us today to learn more about your mortgage refinancing options or apply online!