You can’t turn on your television or fire up a browser without seeing some sort of advertisement for a low cost mortgage loan as an alternative to whatever you’re currently paying for your home. The question is, however, is refinancing a good idea and does it always make sense? Or, is it simply better to keep your current mortgage loan in place?
First things first… what exactly does it mean to refinance your home loan? Refinancing simply means you’re taking out a new loan that will pay off your existing loan. You’re not changing the terms of your current mortgage but are instead paying it off with a new loan that has new terms. You can certainly refinance with your current lender or you can refinance your home loan with an entirely different lender. It’s completely up to you.
The process is relatively simple. As you did for your current loan, you’ll visit a mortgage broker or a mortgage lender who will ask some basic questions about your credit and financial situation and then attempt to get you qualified or “pre-qualified” for a new loan. The new loan, however, would be subject to the normal underwriting procedures that include an appraisal of your property, a credit check and an approve/deny decision by an underwriter. This process can take a few weeks or longer.
Pros And Cons
There are really only two benefits to refinancing; paying less interest and shortening the length of your loan. If you’re able to refinance into a loan that results in a reduction of your interest rate to something lower, then you’ve normally made a good decision. But, you’ll have to balance the lower monthly payment with the cost to refinance, which can cost thousands of dollars in many cases. So, if your monthly savings will eventually surpass the amount you paid to refinance (and pretty quickly…as in less than a couple of years) then you’ve likely made a good choice. The faster you can recoup your cost to refinance thanks to a lower monthly payment the better deal you got.