Refinancing a home involves attaining a new mortgage that results in a lower interest rate, reduced monthly payments, and an ability to take money out of your home for a big purchase. Through the improvement of your credit score with consistent, on-time payments, and consistent work in your career, you may feel empowered to consider refinancing your home. This approach to home ownership and personal finances has the potential to save you hundreds of dollars a year and continue to pave the way to financial freedom.

What are the Steps to Refinancing Your Home?

Your first consideration when refinancing your home comes with determining your method for repaying that loan. Will you be selling the home soon? Will you be procuring a loan to pay for your education, home renovations, or to pay off credit card debt? Are you simply refinancing the home for a better rate that will allow for a faster payoff of your mortgage? Get clear about what you want to do with the loan and how you plan to pay it off, and create a path to success with your decision.

The next step is to speak with your mortgage lender to explore your options. You may find there isn’t an existing rate that would benefit you, and that better opportunities to refinance lie ahead. If it is a good time to refinance, there will be costs associated with the process:

• Application Fees - Lenders charge this fee to cover the cost of checking your credit report and processing the loan request
• Title Insurance and Search - The title insurance company provides a policy, and this cost covers any loss resulting from discrepancies in the property’s title and the verification of the ownership of the property.
• Lender’s Attorney Fees - The lender charges these fees to the borrower to cover the closing costs from the lawyer.
• Points and Fees in Loan Preparation - Points are equivalent to the percentage of the actual loan amount and they are prepaid fees that increase the margins of the lender’s total profit (on top of the interest rate of the mortgage). The fees are also associated with the act of development and evaluation of the mortgage loan itself.

When is the Best Time to Refinance?

Though lenders’ terms differ, most have the requirement of maintaining the original mortgage for at least one year before refinancing. It also works to your benefit to consider working with your current lender for the refinance, as they may be more motivated to keep an existing customer and remove the requirements for title searches and property appraisals. They may even offer more competitive rates with the goal of keeping you as a customer.

Benefits of Refinancing

Refinancing your home may bring with it one of these opportunities:

• Lower monthly payments - If you plan to stay in your home for some time, your lowered interest rate and monthly payment will more than pay off the cost of refinancing your home, and help you save for your future.
• Cash out some of the home’s equity - If you need the flexibility to pay off debt, take a much-needed vacation, or contribute to your child’s college fund, refinancing on the current value of your house may provide the income to do so.
• Switching to a fixed rate mortgage - Many people may select an Adjustable Rate Mortgage, in the beginning, to keep their initial monthly payments low, but the opportunity to switch to a new rate at a fixed mortgage to remove the threat of increased interest rates and payments may be appealing.
• Cancel your Private Mortgage Insurance - If you originally purchased your home with a down payment below 20%, you likely had to get private mortgage insurance. As your home value increases your mortgage amount decreases, you likely can use this opportunity to remove your PMI.

After a careful review of your options, you may elect to get serious about taking the next steps to refinance your home. We hope to keep you informed as you make more decisions to reach your personal finance goals.