Mortgage Refinance

When to Refinance Your Mortgage

Mortgage refinance is the process of taking out a new home loan, and using the money you borrow from the lender to close out your existing home loan. This benefits many homeowners, because you are sometimes able to find a home loan at a far better interest rate than what you are currently locked into mortgage rates. This can sometimes mean you have the ability to pay your home loan off sooner, with a lower amount to pay back each month.

If you are considering mortgage refinance then there are four key factors that you should take into account before making your decision. These factors include:

  • the interest rate on your existing mortgage
  • the current market mortgage refinance rate
  • how long you plan to live in your existing home, and
  • whether you need money for other things now in the short term

Because mortgage refinance involves many of the same steps that you followed to get your existing home loan, you can provide the some of the same documents such as proof of income and savings balances. You may, however, be expected to comply with a few additional steps such as providing proof of regular payments on the existing mortgage and information about your purpose for refinancing. You need to understand that when you refinance, you will incur many of the same charges that you paid when you bought your home. This includes appraisal fees, lenders' fees, title insurance and more.

Refinancing your home loan is a smart way to manage your money because by obtaining a lower mortgage interest rate you can easily lower your monthly payment requirements. This is the most common reason homeowners choose to mortgage refinance. When considering whether or not to get another mortgage, the most common rule-of-thumb is to remember that the interest rate for your new mortgage should be about two percent lower than your existing home loan interest rate. When you refinance to a lower interest rate, you can significantly reduce your monthly mortgage payment, as long as you don't increase your mortgage principal amount. Refinancing can save you a lot of money and can also help you to increase the value of your assets.

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