6 Things You Need to Know About Refinancing Your Home
There are many reasons that refinancing your home could be a smart decision. However, you’ll want to make sure you know everything there is to know about refinancing before you begin the process. That way you can ensure you get approved faster and completely understand how to properly refinance.
If you don’t know how to properly refinance, it could end up hurting you financially in the end because you could accidentally increase your interest rate rather than lower it and pay a lot more money. That’s why this blog will discuss the top six things that you should know when it comes to refinancing your home.
What You Should Know About Refinancing Your Home
1. Definition
Before you refinance, you should make sure you completely understand what a refinance is. A mortgage refinance is when you obtain a new mortgage to replace your previous mortgage loan. It can be used for many different reasons to help the borrower financially. Plus the mortgage can be completely customizable to fit the needs of the borrower.
2. Advantages
Most of the time people decide to refinance so that they can save more money or take out extra cash. Below are the main advantages that can come from a refinance:
- Get a better interest rate
- Reduce your monthly payment
- Shorten the term of your loan
- Take out cash (equity) from your home
- Switch to a fixed rate from a variable rate
3. Risks
One of the biggest risks you take when refinancing is the chance of paying a penalty fee. Penalties could occur when you pay down your current mortgage with your line of home equity credit. Most of the time in mortgage agreements there will be a provision which allows the mortgage company to charge a fee that could equate to thousands of dollars. Make sure to fully read the agreement or talk to your loan officer about penalties before signing.
You should also watch out for additional fees. Additional fees may be charged to pay the bank or an attorney who will make sure you get the best deal and handle all of your paperwork if you’re not comfortable filling it out and submitting it. The best way to avoid fees is to find a free refinance or wait for the fees to go down. However, paying for additional fees may be worth the extra cost upfront if the refinance will save you a ton of money in the long run.
4. How-To
Before you decide to refinance, you should speak with your mortgage company first. They will help you find the best option or let you know if right now isn’t the best time to refinance.
If you decide it would be beneficial to refinance, you should start saving up some money in order to pay back your refinance before you even get started. You want to make sure you have a steady income that will be able to cover the cost of living along with your new loan.
Once you’re prepared financially then you should move forward in the process. You should also think about hiring an attorney to help you refinance. They can help you better understand the process and some of the complicated paperwork.
5. Best Practices
Generally, lenders and banks won’t allow a borrower to refinance until they have maintained their original mortgage for at least 12 months. However, if a borrower would like to refinance before that time, they could speak with a lender or bank to see if they can still qualify because the terms and requirements may vary based on the borrower.
In most cases, the borrower should refinance with the original lender. This is because there it will be a lot less work to find the title search, property appraisal, etc. Plus by staying with the original lender you could get a better deal on your refinance.
6. Cost
The total cost to refinance will depend on where you’re located, but it should be somewhere between $2,000 and $5,000. Below is a breakdown of the main costs and how much they should be.
- Mortgage application (estimated cost: $75 – $300)
- Home appraisal (estimated cost: $225 – $700)
- Loan origination (estimated cost: 1 – 1.5 percent of the total principal)
- Document preparation (estimated cost: $200 – $500)
- Title search (estimated cost: $700 – $900)
- Recording (estimated cost: $25 – $250)
- Flood certification (estimated cost: $50 – $150 for the certification)
- Home inspection (estimated cost: $175 – $300)
- Attorney (estimated cost: $500 – $1,000)
- Survey (estimated cost: $150 – $400)
Get Started Today!
This blog was written by Trusted House Finance, a company that offers personalized advice on mortgage refinancing. Contact us today if you’re ready to get started on refinancing your home. If you aren’t sure if refinancing is right for you, use our mortgage savings calculator to find out how much you could save.
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