A comprehensive guide on refinancing mortgages

A comprehensive guide on refinancing mortgages

Refinancing is when an existing debt is replaced with another debt, but with different terms. For many homeowners, paying back the original mortgage on their homes can be difficult. This can be due to the original loan term being short, lack of funds, or other issues that can impede repayment of the mortgage. This is when a refinance mortgage comes to the rescue. Read on to know more about the basics of refinancing mortgages.

Reasons to take a refinance mortgage

  • Refinancing is usually sought as an option when one wants to lower the interest rate of their current mortgage. It helps to lower mortgage payments, enabling substantial savings in the long term.
  • In some cases, people refinance to get a new loan type or for a new loan term. All this helps in paying off the original mortgage sooner.
  • Refinance mortgage is also taken to cash out home equity.

How does refinance mortgage work?
Refinancing is similar to a normal mortgage. The first step involves comparing various loan terms and interest rates from different mortgage lenders. These terms should be compared with the existing mortgage. Depending on credit score, one may be eligible for better loan terms. The application process for refinancing is similar to a normal mortgage application process. It usually takes between 35 and 45 days to refinance a mortgage on a house. Repaying a refinance loan is similar to repaying the original mortgage. However, it is the mortgage provider who repays the original mortgage. With a refinancing mortgage, you have the freedom to choose the loan terms and the rate that helps you to save more and avail of better benefits.

Factors to consider while refinancing
Along with lower mortgage rates, homeowners need to consider the following factors.

  • Current interest rate
  • Refinance cost
  • Repayment tenure
  • Home equity
  • Penalties due to non-payment
  • Closing rates

Types of refinancing mortgages
Following are the three main types of refinance loans.

  • Cash-in: This is a rarely used refinancing option for home mortgages. A homeowner can lower their mortgage balance by bringing money to the table. This option is usually sought when repayments on the original mortgage are behind schedule, or the homeowner wants to pay back private mortgage insurance.
  • Cash-out: This type of refinancing option cashes out a part of the home equity. The loan amount goes higher; however, the difference is generally the same as the amount that has been cashed out. This option is viable when a homeowner needs emergency cash. It can, however, lead to higher interest rates and monthly payments.
  • Rate-and-term: Here, it is possible to change the loan term, interest rate, or both for an existing loan. Rate-and-term is a viable option for those who want to change their loans from an adjustable rate to a fixed rate. Also, it makes sense to pick this type of refinancing option when one wants to save more on their monthly repayments.

Current refinance mortgage rates
The refinance rates keep on fluctuating depending on various market and banking factors. Moreover, refinance mortgage rates depend on the lender, location, property value, loan amount, credit score of the applicant, loan term, and type of interest rate.

Popular refinance mortgage calculators
The best way to figure out refinance options is to use a refinance mortgage calculator. There are several mortgage calculators that are available online. For reliable calculators, make sure you check the websites of various lenders and banks that offer refinance mortgages.

Top providers of refinance mortgage loans
Following are some of the top-rated refinance mortgage companies.

  • AmeriSave Mortgage
  • Alliant Credit Union
  • Bank of America
  • Better.com
  • LenderFi
  • Quicken Loans
  • Nationwide Home Loans