You may be wondering what it means to refinance, the benefits of refinancing, and what different refinancing options are out there. Check out this quick article to learn more!
Refinancing your home mortgage means converting your current home loan into a new one.
There are several reasons why someone may choose to refinance. Benefits can include reducing your monthly mortgage payments, getting a lower interest rate, shortening the term of your loan, or tapping into your home’s equity.
Different refinancing options
To better understand refinancing, it’s helpful to look at different examples of refinancing options. For instance:
- Current FHA mortgage holders may choose to refinance into a different type of mortgage so they can get rid of mortgage insurance fees.
- If you have a 7-year adjustable-rate mortgage (ARM), you may refinance your ARM loan into a fixed loan, so that your interest rate doesn’t go up at the adjustment period.
- You may currently have a 30-year fixed-rate loan, then choose to refinance into a 15-year fixed-rate mortgage so you can shorten the term of your loan.
- If you’re currently on a 15-year mortgage, you can refinance to a 30-year mortgage. This lengthens the term of your loan but reduces the monthly payments.
- Tapping into your home’s equity: You may choose to refinance for more than what you owe on your current loan. In this case, you’ll receive a check for your home’s equity. This is called a cash-out refinance. Oftentimes, people can get the cash-out in addition to lower interest rates on their loan.
How to get approved for a refinance
You still need to qualify for the refinance the same way you had to get approved for the original loan. This means submitting an application with a mortgage lender, going through the underwriting process, and closing on the refinance similar to how you closed on the home loan.
In certain cases, you may be able to opt for a “Streamline” refinance. This “streamlined” option has a faster approval process and doesn’t require you to provide as many documents.
When choosing a mortgage lender to help you refinance, it’s best to get a second opinion. Rates and fees can vary from lender to lender.
Also, consider reaching out to the mortgage lender who helped with your original loan. Working with a mortgage professional who already has a good understanding of your situation can make the process run more smoothly.
While there are many benefits to refinancing, you should speak to a mortgage professional to help you choose the best course of action.