If your current mortgage is not working for you anymore, or you want to explore getting a more competitive interest rate, going through the refinancing process can be a great chance to restructure your housing costs.
The team of experienced mortgage brokers at Penn Street Mortgage is here to help you through the lending process when it comes time to refinance your existing mortgage and ensure you are making a smart financial decision.
Let’s walk through what the refinancing process looks like and what kind of loan products are available.
What does Refinancing mean?
Refinancing your mortgage involves paying off your current home loan with a new one that hopefully offers better interest rates and terms. Refinancing is usually a good choice for homeowners when they can capitalize on their home’s equity, get a better interest rate, or change the type of loan program they have.
Essentially, refinancing is a financial decision that can help you improve your mortgage situation and potentially save you money in the long run.
When should you consider refinancing?
The key to refinancing is doing it at the right time. Depending on different loan programs, your credit history, and your home’s current equity, you can ensure you are getting the right mortgage by working with a trusted mortgage broker for the refinancing process.
Here are a few ways you can time your refinance to benefit you the most.
Current Interest Rates are Lower
If you secured a higher rate than what the average interest rate is, it could be a great time to refinance. Even a 1% drop in interest rate can lead to substantial savings in the long run and help you keep your housing costs low.
Improve Your Loan Term
Refinancing can allow you to shorten your mortgage term, giving you a smart financial planning tool for the future. For instance, moving from a 30-year to a 15-year term could save a large amount in interest over the lifetime of the loan.
Switch from an Adjustable to Fixed Rate Mortgage
If you initially chose an Adjustable-Rate Mortgage (ARM), but prefer the predictability of a fixed-rate mortgage, refinancing allows you to change loan programs and make that switch. One of our professional mortgage brokers can help you explore what you qualify for and how much you can expect to save on your monthly payment when you switch to a fixed-rate mortgage.
If you have sufficient home equity, you can refinance to consolidate higher-interest debts like credit card balances or student loans into your mortgage.
How to Refinance Your Mortgage?
If you are ready to start the application process and begin refinancing, working with mortgage brokers can be a great way to explore all the loan options. The steps to refinance go something like this:
Determine your goal
Start with understanding what you want to get out of refinancing. Are you looking for lower monthly payments? Change your loan terms? Get a fixed interest rate? Our mortgage brokers can help you explore what makes the most sense.
Check your credit score
A strong credit score helps you get the best mortgage terms. If your credit score is not where you would like it to be, take the time to improve it first so you can get a better deal.
Check your home equity
The more equity you have in your home, the more attractive you will be to lenders. Usually, a minimum of 20% equity is ideal for refinancing.
Work with a mortgage broker for the best deal
Work with a mortgage broker like our team at Penn Street Mortgage. We can help connect you with multiple lenders to ensure you get the best final terms for your home loan.
Calculate the costs
When you refinance, you will still have to pay closing costs. These fees are typically between 3-6% of the loan’s principal amount. Make sure you calculate this first and ensure it makes financial sense for you to refinance.
When to avoid refinancing
When the path ahead looks sunny, it is easy to overlook any possible potholes. And while refinancing could offer a lot of benefits, it also carries its own set of risks.
Here are some things to consider before diving head-first into the refinancing process.
When you refinance your home loan, it is not completely free. You will have to pay some extra costs like fees for appraisal, origination, and closing. However, you can plan and manage these costs. Just remember to consider them while calculating your savings in the long run. If the overall benefits of refinancing your loan outweigh the upfront costs, then it is worth it.
2. Longer Mortgage Term
While a lower payment may seem like a good thing, it could actually mean that you end up paying more in interest over time. This is because extending the life of your mortgage means that you will be paying interest for a longer period. So, it is important to weigh the pros and cons before making a decision about your mortgage.
It is important to know that some home loans charge prepayment penalties if you pay off your mortgage early, even if you do so by refinancing. To avoid any surprises, it is a good idea to check your mortgage agreement or contact us for expert advice to avoid any hidden fees.
Work with a Penn Street Mortgage broker for your refinance!
Ready to refinance your mortgage? Our team of mortgage brokers at Penn Street Mortgage is here to walk you through the entire process from start to finish. We will serve as the go-between for you and mortgage lenders to ensure you get the best interest rate and loan terms possible.
We are here to help! Contact us today, and let us guide you through the mortgage refinance process.