Buzzword REFI *** Everyone always talks about refinancing a few years after your purchase so I am here to explain the process so you don't have to google it.
There are several benefits of refinancing your loan, including:
- Lower monthly payments: If you are able to secure a lower interest rate when refinancing, your monthly payments may be lower.
- Reduced interest costs: A lower interest rate can also result in significant savings over the life of the loan.
- Here is an example- Sally borrowed $200,000 from the bank with a 5% interest rate with a 30 year term, making her monthly payment: $1,073. 2 years later, she refinanced the mortgage with the same total loan amount of $200,000 but secured a 3% interest rate instead of 5%. The 2% savings brought her monthly payment to $898, resulting in a monthly payment reduction of $175. Over the life of the loan, this would result in a total savings of $63,000 in interest costs.
- ** It's important to note that the actual savings will depend on your specific circumstances, including the loan amount, interest rate, and term of the loan. It's a good idea to use a mortgage calculator to see how much you could potentially save by refinancing.**
- Change in loan type: Refinancing may allow you to change the type of loan you have, such as switching from an adjustable rate mortgage to a fixed rate mortgage.
- The big zinger !!! Access to equity: If you have built up equity in your home, refinancing may allow you to access that equity through a cash-out refinance.
- In this example, Sally is refinancing her mortgage and taking out an additional $40,000 in cash. The new loan amount is $240,000, which includes the $200,000 balance of your existing mortgage plus the $40,000 cash-out amount. The new monthly payment is $1,005, which is slightly higher than the original mortgage payment of $1,073 due to the larger loan amount.
- ** It's important to note that a cash-out refinance will typically have a higher interest rate and fees compared to a traditional refinance, so you should carefully consider the costs and benefits before proceeding. **
To refinance your loan, you will need to follow these steps:
- Reach out to your lender you worked with on the existing loan to see if they can offer a better rate.
- Shop around: Compare rates and fees from multiple lenders to find the best deal.
- Gather required documents: You will need to provide documentation such as proof of income, employment, and credit history.
- Submit an application: Once you have chosen a lender, you will need to complete a loan application and provide any required documentation.
- Wait for approval: The lender will review your application and make a decision on whether to approve the refinance.
- Close the loan: If the refinance is approved, you will need to sign the loan documents and pay any closing costs. The lender will then pay off your existing loan and issue a new one. Pro tip- ask the lender to pay for your closing costs, many will waive this fee to gain you as their client.
I would love to be your guide through out this process, feel free to reach out!
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