Buying a home may have been a tough challenge, however keeping up with not only the payments, but the upkeep can be an even bigger one, especially on your wallet. Here you are, years later in the home of what you thought was your dreams, but because of life it's slowly becoming a nightmare. The silver lining in this, is that there’s a way to escape the bad dream, thanks to refinancing.
Refinancing your mortgage can be a huge money saver from month to month and even for the long-haul. We caught up with Miguel, a homeowner, who loves his house just not the expenses it came with. He was generous enough to weigh in on his experience of what the steps to refinancing his home was like.
Determine Your Goals
What are you trying to get out of refinancing your mortgage? Ask yourself this question before you get started with your refinance so that lenders can help steer you in the right direction.
“My goal was to open up my month to month budget, so that I could free up some money for not only my family, but things I was neglecting in my house like chipped tiles or new air filters. When I refinanced I expressed this and the girl was able to explain to me what it would take to get me a lower monthly payment on my mortgage,” explains Miguel.
“Since I had decent credit and had no plans on moving, she suggested that extending out the terms when I refinanced could help me save some cash month to month. The terms came in years, so about every 5 years or so saved me about 100-200 bucks.”
Knowing the reason why you’re deciding to refinance can help, in Miguel’s case he wanted to save money month to month. We’ve listed some common goals people have when refinancing their mortgage and suggestions on how to achieve them.
- Goal: Lower month to month payments
- Solution: Extend terms or put more money down when refinancing
- Goal: Pay less in interest
- Solution: Clean up credit to qualify for lower rate, starting with unpaid debts or don’t extend terms
- Goal: Convert mortgage type
- Solution: Compare fixed and adjustable rate mortgages before making a decision
Research All the Numbers
When it comes to refinancing your mortgage, numbers are the game. There’s four big things to lookout for and knowing them will help to make your refinance a lot easier.
Credit score always goes hand in hand with rates when you’re borrowing money. Before you go to refinance, make sure your credit score is the best that it can be and generally higher than when you first applied for a mortgage as this will help you qualify for a better rate.
When refinancing your mortgage, knowing the value of your home is crucial as it can help you to determine if it’s worth pursuing or not. If the value of the home has dropped and you still owe a lot on your current mortgage, lenders may be hesitant to refinance since this causes a lack of equity in the home. Equity is also important when it comes to refinancing because it plays a role when getting rid of having to pay private mortgage insurance, you’ll want to aim to have a home equity value of more than 20% of the appraisal price. (will ask lending)
Don’t forget that when you refinance a mortgage, you may incur some costs you didn’t realize such as closing costs, appraisal fees, and application fees and so on. Ask about these up front so that you can budget for them.
The point of refinancing a mortgage is ultimately to replace a loan with an even better one. Making sure that you gain a better loan whether that be a better interest rate, better terms, lower monthly payment or all of it is important. If you aren’t saving money, is refinancing really beneficial at this time?
Miguel shared, “I’m someone who likes things to be organized and convenient. I remembered back to all the times I have applied for loans for my personal and investment properties and everything that was asked from me. To make this faster I get everything together beforehand. If you aren’t sure what you’re going to need at least have the basics…ID, pay stubs, bank statements.”
If this is your first refinance, treat it as you did with the first time you applied for a mortgage. If you can’t remember what types of paperwork that was needed reach out to your financial institution to get an idea of what they'll need.
Apply, Sign and Close
Remember the first time you applied for a mortgage? Applying for a refinance is almost exactly the same plus or minus a few questions. After you’ve filled out an application and of course did all the other leg work, it’s time to sign and close on your mortgage refinance.
Miguel told us, “Once I felt ready and knew that this was going to benefit me, I didn’t hesitate to apply!”
Refinancing a mortgage can take some time, as the processes can be drawn out. We want you to go in feeling prepared and confident in what you’re doing, by keeping our steps to refinancing in mind.
As you go through the process there may be things that pop up or things you learn, so it’s important to always ask questions as you keep going.
The most important thing Miguel shared with us is that he made sure his choice made sense and that it was ultimately going to benefit him. Which it did in more ways than one.