A Cheat Sheet for Refinancing Your Mortgage

In the world of real estate, the term mortgage is a common one. Getting someone to pay for your new home while you pay off the debt over a few years benefits both sides. The lender earns, while you won’t have to overthink how to save enough to pay in cash.

People often find themselves in a situation where the mortgage conditions they signed aren’t working well for them, which is where refinancing comes into play. This guide will explain what it is and why it may be a good idea to consider it.

What Is Mortgage Refinancing?

Mortgage refinancing is the process of getting a new mortgage on top of the one you already have. Let’s say you’re 15 years into a 30-year mortgage and want to refinance. You take out another mortgage, with different conditions than the original one. The second mortgage pays off the first one, and you have the second mortgage to pay off.

Why Should You Consider Mortgage Refinancing?

At first glance, it seems like you’re borrowing money to repay the debts you already owe, and in many ways, it is. The main difference is that there are multiple benefits to considering this approach.

Get a Mortgage with Lower Rates

Several market factors dictate mortgage rates, which is why they change constantly. In the past 50 years, we’ve seen the average rates go from over 16% to a bit below 3%, with today’s numbers hovering around 6%.

The idea here is to get a new mortgage with a lower interest rate than the one you already have. This would allow you to pay off the first mortgage instantly, and you’ll continue planning the second one, but with a lower interest rate. If all the remaining conditions are similar, you should be looking at a smaller monthly payment.

Remember that this is a good idea for mortgages with fixed rates. For example, you have a mortgage with an 8% interest rate. Getting a new one with 6% means saving 2%, which doesn’t sound like much, but it can make a significant difference throughout the mortgage.

Change the Duration of the Mortgage

Whenever you take out a new mortgage to repay the old one, you can choose the repayment terms. These can be both short and long, depending on your needs.

If you want to pay off the mortgage faster, you can shorten the term, and if you have 15 years remaining of the first one, you can pay it off in 10. People whose monthly budget allows for this go for this approach to be done with the mortgage sooner.

On the other hand, some choose to lengthen the term. For the previous example, stretch out the remaining 15 years into 20 or 30. We often see this with people whose pay is lower than the one they had when they signed the mortgage or who struggle to make regular payments. Going for the longer option will reduce the monthly payment and allow for a slightly more comfortable lifestyle.

Cash-Out Refinance

Whenever you’re going for the refinance option, you can get a second mortgage for an amount more than what you owe in the first one. Cash-out refinance is an excellent approach if you want to get a check with a difference and use those funds for other applications.

Change the Type of Mortgage

Depending on the conditions at the time you got your first mortgage, you’ve gone for one of the often-chosen options. If, for some reason, you’re no longer happy or want to change some options, refinancing is a good idea.

There’s no correlation between both as long as the second mortgage covers the amount you owe for the first one. The same thing applies to the interest rate. There are two types: adjustable and fixed, and with refinance, you can choose the other one.

You can make many combinations, and as long as you’re eligible for the mortgage, you shouldn’t have any issues getting approved.

Finding the Best Mortgage Refinance Option

The best thing about mortgages nowadays is that you have plenty to choose from. Let’s say you live in Florida, and you’re considering this approach. All you need to do is open is to type in “Florida refinance” in your favorite search engine and get hundreds of potential options. You can do this more locally and search by city. If you’re planning on buying a house together with a partner or friend, you can also explore joint mortgage options that may be available to you. This can open up even more possibilities for finding the right mortgage for your specific needs and circumstances. It’s always a good idea to carefully research and compare different mortgage options before making a decision.

Keep in mind that there will be small differences between lenders, which is why it’s a good idea to get estimates from multiple lenders. The estimates contain important information, including terms, monthly payments, closing costs, and any other fees you’ll need to pay. Comparing them will allow you to see which one would work best for you.

Since you’re considering a refinancing option, it’s a good idea to compare both mortgages – the one you already have and the second one. It will give you an idea of your potential savings and the overall differences between both of them as you finance your next home or property.