Refinancing is defined as to apply for a new home mortgage. When you refinance your home you are replacing your existing home loan with a new one, which may allow you to adjust the term of the loan, the interest rate, the amount of the monthly mortgage or the equity in your home. Lenders often refinance home mortgage loans in order to take advantage of lower interest rates or to free up cash for other expenses. By reducing your monthly mortgage payment or the remaining term of your loan over the long run, you can potentially save paying tens of thousands of dollars in interest.
Consider the Cost of Refinance
Once you have made a mind refinancing your home mortgage, you might want to talk to your lender first. You will be required to go through a credit check and verification of employment. It’s always wise to request a good-faith estimate in writing from the lending institution, particularly if you talk to more than one lender. You will want to make certain that you understand all of the costs involved, as you compare lenders and the best interest rate each offers. It is important to remember that refinancing comes with loan processing costs as well.
Compare Interest Rates
If you are refinancing with the financial institution that has your first mortgage, ask if there are any special discounts given to established customers or if certain fees can be waived. While interest rates are important, you will want to take into account the overall cost of the loan, including loan origination fees and points.
Ask Yourself If It Will Pay Off In the End
In order to determine whether refinancing your home mortgage will pay off in your case, ask yourself whether you can refinance at an interest rate at least 2 percent lower than what you are paying now. Remember, though, that if you pay a lower interest rate, you will have less interest to deduct from your income come tax time. On the flip side, some refinancing costs are tax deductible in the year that the refinance occurs.