Refinancing a mortgage is something that every homeowner should be aware of. Depending on individual circumstances, refinancing might not be the best option, but there may come a time when you can take advantage of the opportunities that refinancing presents. Knowing your options ahead of time may empower you to pounce on an opportunity should favorable conditions present themselves.
With the current state of the housing market and low interest rates, refinancing might even make sense now. We have compiled everything you need to know about refinancing your mortgage and taking that next step to financial freedom.
What is Refinancing?
First things first, let’s talk about what exactly refinancing is. Refinancing is essentially when you trade in your current mortgage for a new one. This can be done through the same lender that your original mortgage is with, or you can refinance with a completely new lender. When refinancing, your lender will use your new mortgage to pay off your old one. Your first mortgage will no longer exist and will be replaced with a new one.
A new mortgage will generally have a new term and a new interest rate. There is usually a 2-6% fee on the total sum of your loan if you want to refinance. Because of this, you will have to do some math to determine if refinancing your loan is a good option depending on your needs. Luckily, there are many advisors willing to help you with this decision and many mortgage refinancing calculators available online.
With interest rates at the lowest they’ve been over the life of homeowners’ mortgages, now may be a fantastic time to take a serious look at your mortgage and decide if refinancing makes sense. If your loan is near the end of its life and nearly paid off, refinancing is probably not worth the hassle and fees.
However, if your mortgage is still in its early stages, you may want to consider one of the refinancing options below. Most likely, a rate and term refinancing option can lower the overall amount that you’ll have to repay on your loan. If you have a mortgage with a higher interest rate, you may want to consider your options.