Refinance Your Mortgage

4/25/2024

Refinancing your mortgage is a common option for homeowners. It’s understandable that you might not be sure whether or not refinancing is a good option for you or when the best time to refinance is for your finances.

There are many different reasons why a mortgage refinance can be a good idea. It’s important to consider all the factors and your options before refinancing your mortgage.
Refinance your mortgage today with Arkansas Federal Credit Union.

What is Mortgage Refinancing?

A mortgage refinance replaces your existing mortgage with a new home loan. When you refinance, your new mortgage pays off your initial mortgage with new loan terms.

There are a lot of reasons why someone might choose to refinance a home loan. With a refinanced mortgage, you could get a better interest rate or use the refinance to add or remove someone from a mortgage. Refinancing a mortgage to remove someone is especially common in divorce.

Refinance Process

The refinance process is similar to the initial mortgage process when buying a house, but it’s a lot easier. You can start the process of a mortgage loan refinance by deciding on the type of refinance loan that works the best for you, such as a rate-and-term refinance or a cash-out refinance.

A rate-and-term refinance allows you to adjust the interest rate or the term (length) of your mortgage. Borrowers often choose this kind of refinance to get a lower interest rate or to change from an adjustable-rate mortgage to a fixed-rate mortgage.

A cash-out refinance allows you to borrow more than you owe on your current mortgage due to its increased equity and receive the difference in cash. This can be useful for debt consolidation, home renovations, or other large expenses.

You don’t have to work with your original mortgage lender when getting a mortgage refinance. You can shop around with different lenders and compare interest rates to find the best mortgage refinance terms for you.

The lender you’re working with to refinance your mortgage loan will ask you for the same information you provided for your original mortgage when you bought your home to make sure that you qualify for a mortgage refinance. Some documentation you may be required to provide includes income documentation, information about assets and debts, and your credit information.

After you apply for your refinanced mortgage, the underwriting process starts. As part of the underwriting process, your lender will verify your financial information and make sure that all the information you’ve submitted is accurate. The main things they consider in underwriting are verifying property details and doing a home appraisal to estimate the value of your home.

After the underwriting and appraisal process, you can close on your loan. To close on the loan, you sign the loan documents and pay any closing costs for your refinanced mortgage.

Reasons to Refinance

There are a lot of different reasons someone might refinance their mortgage. Reasons to refinance can be very different, from getting better loan terms to taking advantage of equity in your home.

One of the main reasons that comes to mind when talking about mortgage refinancing is changing loan terms. For example, if interest rates have changed or you’re able to make higher monthly payments than when you initially got your mortgage, you could refinance your mortgage to change from a 30-year mortgage to a 15-year mortgage. Shortening your loan term will most likely mean that you’ll have more expensive loan payments, but you’ll save money through the life of your loan by having fewer total mortgage payments and paying less total interest.

Changing interest rates is another big reason that someone might want to refinance a mortgage. If interest rates have improved significantly since you got your mortgage, refinancing to a lower interest rate could save you a lot of money throughout the life of your loan without making any other major changes to your mortgage.

When you refinance, you can change the type of mortgage that you have. You could change to a different loan type or mortgage program that may be more beneficial to you. If you have a mortgage that currently requires private mortgage insurance, you could refinance your mortgage to get a mortgage type without private mortgage insurance.

You can refinance your mortgage to cash out on equity in your home. When you refinance your mortgage, you can borrow more than you owe on your home, and after your original mortgage is paid off, you can pocket the difference in your mortgage amount as cash.

Types of Mortgage Refinance

There are a few different mortgage refinancing options. The main difference between these types of refinancing is how they impact your loan.

A cash-out refinance is one type of mortgage refinance. With a cash-out refinance, you take out your new mortgage on your property for a larger sum than what you have on your original mortgage. You’ll receive the difference between the two loan amounts in cash. This can be a good option if you need access to money, and taking out a larger mortgage is a good option for you.

Another mortgage refinance type is a cash-in refinance. While this has a similar name to a cash-out refinance, they are completely different. A cash-in refinance is when you pay down a significant portion of your mortgage balance. Paying down your mortgage balance can help by reducing your loan-to-value ratio (LTV) and increasing the amount of equity you have in your home. Paying a large amount of your mortgage balance as part of a cash-in refinance is like paying another down payment. A cash-in refinance means that you’ll have a smaller loan amount, which could result in lower monthly payments or a lower interest rate.

The other refinancing option is a rate and term refinance. With this type of refinancing, you can change the interest rate and loan terms of your existing mortgage. A rate and term refinance can be beneficial when the refinance rates are lower, and the borrower can pursue more favorable loan terms. The size of the mortgage will stay the same, but you could have lower monthly payments or pay off your mortgage faster.

When to Refinance Your Home?

If you’re considering refinancing your mortgage, it’s important to consider market trends and your financial situation. When you refinance your mortgage, you will typically need to pay closing costs again. With added fees, it’s important to make sure that your refinance will actually benefit you. It’s a good idea to calculate when you would break even on your mortgage refinance after paying your refinancing expenses.

You should also consider the impact on your credit score. When you apply for a mortgage refinance, the mortgage company will draw a hard credit inquiry as part of the approval process. A credit inquiry could lower your credit score for a short period of time, so it’s important to make sure that you’re ready for that.

What Are The Benefits of Refinancing Your Home?

Refinancing your mortgage can bring a lot of benefits. Depending on your situation and the type of refinance you pursue, there may be different benefits available to you.

One of the most commonly known benefits of refinancing your mortgage is that you can lower interest rates or your monthly payment amount. To best take advantage of these options, it’s important to pay attention to market trends so you can refinance at the best time.

Refinancing could help you pay off your mortgage early. Being able to pay off your mortgage early can help you save money by saving on interest payments and remove the financial burden of your mortgage faster.

If you currently have a mortgage with an adjustable interest rate, you could be at risk of having your interest rate increase if the market changes. You can refinance your mortgage to lock in a fixed interest rate. Not only will this give you peace of mind that your interest rate won’t change, it will be easier to budget for because your mortgage payment amount will be the same each month.

With a cash-out refinance, you can get funds for home improvements or repairs. Refinancing to take out a larger mortgage can be a good option for home improvements because you can finance projects with only one loan.

If your original mortgage required private mortgage insurance, refinancing to a mortgage that doesn’t require it could save you a lot of money. Private mortgage insurance can be very expensive. Not having to pay for private mortgage insurance could remove a large financial burden from your mortgage payments.