What Should I Know About Refinancing a Mortgage?
If your financial situation has changed, you maybe eligible for a better interest rate. This would help to reduce the interest you pay per month, putting more towards your principal or even freeing up more cash for other bills, for savings, or for the purchase of a new car.
Some homeowners were required to have private mortgage insurance (PMI) at the time of purchase because they could not afford a large down payment. This PMI has a huge impact on your monthly mortgage payment. If you have successfully paid your mortgage to the point where you have over 20% equity, you will likely be eligible to refinance without the PMI.
Your best bet to get started with mortgage refinancing is to simply contact your current mortgage lender. Remember that you do not have to refinance with your current lender, so you will want to spend time searching other institutions, especially if you are seeking better refinance mortgage rates.
The lending company you choose can confirm the current amount you owe on the property and your current interest rates. They can also let you know whether they have a good refinancing package that would work for you. Be sure to discuss options regarding refinance mortgage rates, especially variable versus fixed rates. If you had a high variable rate before, now is a great time to switch over to a low fixed rate.
You will also want to take into consideration the amount of principal you have left on the property. Remember that you are mainly refinancing for what is left of the principal, so if you have a small amount of principal, a refinance mortgage is probably not your best bet. The same holds true if you are preparing to sell the house soon, because you are usually required to pay more interest in the first few years of a mortgage, so selling the property right away would leave you on the short side.
Just as with most conventional loans, mortgage refinancing allows for several different options, including adjustable and fixed rates and 10-30 year loans. An excellent benefit of refinancing is that you can often shorten the life of your loan. If you previously had a 30 year loan, you maybe able to refinance to a 15 or 20 year mortgage. One of the most important things to keep in mind is to go over your reasons for refinancing with the lending company you choose, so they are aware of what incentives you are looking for.
Keep in mind that there are specific rules in place about disclosing to the second lending institution the mortgage you have with the first lender. It is essential that you are completely upfront and honest about your first mortgage, so that you can hear all the options the new lender has for you.