Refinancing is the process of replacing an existing mortgage with a new loan that pays off the debt of the first one. Ideally, this new loan should have better terms or features that improve your finances. Typically, you might want to refinance if your current loan is too expensive or too risky.
How Refinancing Works
The first step in refinancing is to begin searching for a lender that will offer you better loan terms than your existing loan. Once you have found your lender, you apply for a new loan. Upon approval and closing process, this new loan will completely pay off your existing debt. Finally, you continue making payments until you pay it off or refinance this loan as well.
Pros and Cons of Refinancing
Some common prod of refinancing are lower monthly payments, extending repayment, and switching to a variable-rate loan. However, there are some drawbacks. One drawback is more interest on your debt since you are extending your mortgage term. Don't let this scare you from refinancing. Contact a mortgage expert (like us) to see what works best for you.
Some Common Questions
Should I refinance?
It might be a good option for you if you have one or two loans with a high interest rate or a damaged credit score. Another factor to consider is how long it will tale for the savings to exceed the costs.
What do you need to qualify for refinancing?
Similar to a mortgage, a lender will need to see that you have sufficient income and a decent credit score. If you're looking into a cash-out refinance, lenders will look to make sure you have sufficient amount of equity.
What is a cash-out refinance?
A cash-out refinance will provide upfront cash to usually help you with a significant life event, such as wedding or remodel. The amount you receive in cash will be the different between your new loan balance and the old loan balance.