What is a mortgage refinance
A mortgage refinance is the process of replacing an existing mortgage loan with a new one. The new loan may have different terms and conditions than the original loan, such as a lower interest rate, a shorter loan term, or a different type of loan.
Popular reasons to refinance:
- Reduce interest rate to save money monthly and/or over the life of the loan
- Consolidate debt to save money monthly
- Access cash for home improvements and renovations
- Use your rising equity for upcoming major purchases (like a vehicle, boat, or RV) or future events (such as college tuition or a wedding)
- Removing someone from the title after a major life event like divorce or a homeowner passing away
- Reduce the term of the loan to pay it off sooner
- Convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
- Investment opportunities to build funds for retirement
When you refinance your mortgage, you will go through a process similar to the one you went through when you first obtained your mortgage. You will need to provide financial information to the lender, such as your income, credit score, and debt-to-income ratio. You will also need to pay closing costs, which can include fees for the appraisal, title search, and loan origination.
It’s important to evaluate your personal circumstances and the cost of refinancing before making the decision. It’s also important to compare offers from multiple lenders and consider the long-term savings of a lower interest rate versus the short-term costs of refinancing.
It is also important to consider the time you have spent paying your existing mortgage and the time left in the loan before you refinance as if you refinance too soon after obtaining the original mortgage, you may not have enough equity in the property to refinance, or you may end up paying more in closing costs than you will save in interest over the life of the loan.