Refinancing A Mortgage? Read This First!

Refinancing a mortgage involves paying off your existing loan and replacing it with a new mortgage, ideally with better terms and interest rates. Refinancing your mortgage can save money on interest or help you pay off your loan sooner. Here, we explain how refinancing actually works.

How Does Mortgage Refinancing Work?

The process to refinance your mortgage is actually quite similar to the process of getting a mortgage. You start by doing your groundwork, which includes shopping around as well as comparing rates. Then, you pick a refinance loan with the best terms and start the application process.  As you go through the refinancing process, make sure to keep an eye on your closing costs. Also, be wary of prepayment charges and other penalties that could increase the cost of your loan. Here are some reasons to refinance your loan:

Reasons to Refinance Your Loan

Lower Monthly Payment and Rate

If the average interest rates for home loans have dropped or if your credit standing has improved since you got your original home loan, you may be able to save a considerable amount of money with a lower rate of interest. Keep in mind that if you choose a longer repayment tenure than what you currently have, you may, in fact, end up paying more interest over the course of the loan term.

Tap Into Your Equity

Do you have significant equity in your home? If so, you may be able to cash out a portion of it through a cash-out refinance. A cash-out is just what it sounds like: you’re taking money from the equity of your home. This can be useful if you need money to finance a large purchase, pay bills, or buy out an ex-spouse in a divorce.

Change Your Rate Type or Loan Term

Refinancing can help you swap out an adjustable or variable-rate loan for a fixed-rate loan—providing you with the stability of knowing exactly what your monthly payment will be. This is extremely helpful for people who are currently paying a lot more than the average market rate. Similarly, you could also refinance if you wanted to change the tenure of your loan.