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Mortgage Loan Refinancing FAQs
Have questions about mortgage refinancing? Online mortgage lending services can help you secure better rates on an existing mortgage through refinancing. Before choosing the best mortgage refinancing option, make sure to understand the process. Get started with answers to the most common questions about mortgage refinancing.
Mortgage refinancing involves taking out a new loan to pay off your existing mortgage. Homeowners refinance their mortgage for a few reasons:
• To take advantage of lower market interest rates • To cash out a portion of their home equity • To reduce monthly payments on an existing mortgage by extending the repayment period • To save money on interest by reducing the repayment period • To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice-versa • To consolidate debt
The process of refinancing a mortgage is similar to taking out an initial mortgage. Begin by shopping at online marketplaces to compare rates of various lenders. If the market has improved, you may find lower interest rates than your existing mortgage. Also, if your credit has improved since you signed your mortgage, you may qualify for lower rates and more favorable terms.
Keep in mind that you may need to pay for closing costs on a new mortgage. Refinancing can cost between 3% and 6% of the loan's principal and requires an appraisal, title search, and application fees. You may need to pay as much as $5,000 upfront when securing a loan from a new lender. Your lender may also charge prepayment penalties for paying off your current mortgage early.
Initially, when shopping around for mortgage refinancing options, you may only need to provide a few personal and financial details such as the type of home you currently own, the location of the home, and details about your current mortgage. Once you apply, you may need to provide documentation of your current mortgage and additional information about your financial information and income.
Refinancing can save you money, or cost you, depending on your situation. If you have an existing mortgage, refinancing could make sense to reduce your monthly payments, shorten the term of your loan, or to help build equity. If you can lower your interest rate by at least half a percentage point, and you plan to stay in your home for at least a few years, you might want to consider refinancing.
APR (annual percentage interest rate) is the interest rate charged per year on your mortgage. Mortgage APRs usually range between 3% to 5%, depending on the loan amount, length, and financial situation of the borrower. APR may fluctuate periodically in the case of a variable-rate mortgage, adjustable-rate mortgage, or tracker mortgage based on an index which reflects the cost to the lender of borrowing on the credit markets.
The length of time you have to repay your loan depends on the terms negotiated between you and the lender. Rocket Mortgage by Quicken Loans, for example, offers 15 and 30 year fixed rates If you have a 30-year loan of $200,000 with a 3.5% interest rate, you would pay approximately $123,000 in interest over the life of the loan. If you cut your term in half to 15 years through refinancing, you would pay about $57,000 in interest over the life of the loan.