Refinancing is great once a house owner gets to a place where they want a brand new real estate loan to replace their current loan to save money or remodel. Most people finance to lower their cash out of pocket and cut back their mortgage payments, usually saving thousands in mortgage interest. However, that’s not the sole reason to refinance a mortgage. You will have to finance into a brand new loan and brand new loan terms — which may assist you paying off your house early. Otherwise you may refinance to take advantage of available home equity.
How will refinancing work?
Refinancing involves taking out a bran new loan to replace your existing loan. When you choose to refinance, you submit an application for a new home loan similar to when you bought the home originally. However this time, instead of using the loan finances to purchase the home, you use it to pay off your current mortgage.
Refinancing, in essence, eliminates the debt owed on your current mortgage. It also lets you select the rate and loan terms on your new loan, so you can get a new loan that saves you cash or helps you complete other financial goals you may have. You continue to pay off your house — but now you’re making your payments on a new loan versus an old one. Please realize you don’t actually pay off the first mortgage on your own. The mortgage lender will handle this part on their end. As far as you’re concerned, the mortgage refinance process will look a lot like your original home loan process had.
How long does it take to refinance
The refinancing process is exactly like the process you went through with your original mortgage. There’s an application, you will submit documentation, go through underwriting, and finally, close on your new mortgage. The length of this process depends on the lender you choose and the overall real estate market demand. A lender dealing with lots of applications or a sudden rush in clients may take longer to process your loan than one with less mortgages to process.
Home loan refinancing
Why most people refinance is to get a lower interest rate.
Let’s just say you bought your home 2 years ago. The homes cost was $300,000. You put a $30,000 down payment on the home and took out a loan for $270,000 to cover the rest of the homes purchase price.
Now, interest rates have dropped, and you want to secure a lower mortgage rate to help limit your monthly payments. So you choose to refinance.
- Your loan balance with Lender A is $260,000
- You look around and find that Lender B can offer you a lower interest rate than Lender A
- You apply for a mortgage with Lender B, asking for a loan balance of $260,000
- You’re approved for this refinanced loan
- Lender B uses that $260,000 to eliminate your debt to Lender A
- Now you pay monthly mortgage payments to Lender B
- You still have a $260,000 loan — but now you have a lower interest rate and less expensive monthly payments
Please make a note, you do not have to work with your existing mortgage lender or loan provider. If the lender you used to buy your home can offer you a lower rate and great terms, feel free to refinance with your lender. But you’re also free to shop around for another company that can offer you an even better deal.
In fact, we recommend you shop around. Your personal finances may have changed since you took out your first mortgage — which means there’s a real chance your original lender may not be your best bet.
