How To Refinance Your Home Mortgage Loan The Smart Way and Save Money

Why refinance your mortgage, and why now?

First, let me answer the second part of the question…

It’s almost mid-2021 and one thing we notice is that mortgage rates have already taken a U-turn.

The historic lows we saw in 2020 and early 2021 might soon be a thing of the past.

The good news is still the 30-year fixed-rate mortgage is hovering a little above 3%, which means it’s not too late to get that lower mortgage plan before you lose this opportunity.

But you need to move quickly.

And why exactly should you consider refinancing your mortgage?

Short answer:
Because, refinancing your mortgage could save you money, help you pay off your home faster, or unlock the equity in your home if the time is right.

Knowing your refinancing options is key to gaining the maximum benefit from your decision.

So today, we will talk about just that… Refinancing your mortgage or the so-called home loan…

But first, let’s start with basics, shall we?

What is refinancing, and is it right for you?

Refinancing simply means you’re taking your existing mortgage and you’re replacing it or paying it off with a new mortgage.

It’s that simple.

There are a couple of different reasons why you might want to refinance your mortgage, but the most common ones are…

Saving on interest

One of the biggest reasons is to get a lower interest rate.

So maybe you got your mortgage a few years ago and interest rates at that time were at six or seven percent and now especially after a drop in rates, they are like three percent.

Refinancing or replacing your old mortgage with a new lower rate mortgage will definitely help you save on interest so saving on interest is one of the biggest reasons to refinance your mortgage.

Lower Monthly Payments

I know for a fact that for many of you, the possibility of lower monthly payments is a very appealing benefit of re-financing.

Each month when you make your mortgage payment, this payment is typically used to repay a portion of the interest as well as a portion of the principle on the loan.

If you are able to refinance your loan at a lower interest rate may see a decrease in the amount you are paying in both interest and principal. This may be due to the lower interest rate as well as the lower remaining balance.

When a home is re-financed, a second mortgage is taken out to repay the first mortgage.

If your existing mortgage is already a few years old, it is likely that you have already had some equity and had paid off some of the previous principle balance.

This enables you to take out a smaller mortgage when you re-finance your home because you are repaying a smaller debt than the original purchase price of the home.

Because of this monthly outgo called a mortgage, many homeowners live paycheck to paycheck, and for them, finding an opportunity to increase their savings can be a monumental feat.

Debt Consolidation

While some of you may look at the re-financing for the sole purpose of debt consolidation.

This is especially true if you have high-interest debts such as credit card debts, personal loans, or even student loans in some cases.

A debt consolidation loan enables you to use the existing equity in your home as collateral to secure a low-interest loan which is large enough to repay the existing balance on the home as well as a number of other debts such as credit card debt, car loan, student loan or any other debts that you may have.

When refinancing is done for debt consolidation there is not always an overall increase in savings.

Those of you who are seeking to consolidate your debts are often struggling with your monthly payments and are seeking an option that makes it easier for you to manage your monthly bills.

Additionally, debt consolidation can also simplify the process of paying monthly bills. If you are someone who is apprehensive about participating in monthly bill pay programs may be overwhelmed by the number of bills you have to pay each month.

Even if the value of these bills is not worrisome, just the act of writing several checks each month and ensuring they are sent, on time, to the correct location can be overwhelming.

Imagine, now you no longer are cutting 5 different checks to pay 5 different financers.

For this reason, it makes sense, provided the calculations favor it, to refinance your mortgage to minimize the number of payments you are making each month.

Using the Existing Equity in the Home

Another popular reason for re-financing is to use the existing equity in the home.

If you have a considerable amount of equity in your home, you may be able to cash out some of this equity for other purposes.

This may include making improvements to the home, starting a business, taking a dream vacation or pursuing a higher degree of education.

You are not limited in how you can use the equity in your home and may re-finance a home equity line of credit which can be used for any purpose imaginable.

A home equity line of credit is different from a loan because the funds are not disbursed all at once.

Rather the funds are made available to the homeowner and the homeowner can withdraw these funds at any time during the draw period.

So when should you refinance or how do you know when is the right time to refinance.

It really depends on your situation and the current interest rates, of course.

It is definitely not advisable to refinance if the new interest rates are higher than your current rate.

Come on now, who would want to do such a thing, right?

But the reality is people still do.

And it is because of the situation they find themselves in.

But ideally, you should look for refinancing only when there is a substantial decrease in the interest rates.

Like the ones we are seeing now.

In 2008, the average rate on a 30 year mortgage was about 6%. In 2018, it was close to 4.5%. Compare it to today’s rate which is about 3%.

If your existing interest rates are much higher than 3%, wouldn’t it be wise to refinance now?

Of course, it would be.

But you still need to assess your individual situation before making that final decision.

Because there are some costs involved in refinancing as well.

It is not a free benefit.

You need to consider the closing costs of your old mortgage as well.

A lot of people will tell you that there’s no closing costs, particularly the salespeople who are trying to sell you a mortgage.

But trust me, there are always closing costs and so you always have to weigh the benefits of refinancing with the cost that you’re paying and the perceived benefit.

You need to access how this refinance fits into your overall financial situation.

A mortgage calculator will help you crunch the numbers so you can take a well educated decision.

Another thing…

One of the challenges and sometimes people don’t realize is they keep stretching out or refinancing into new loans and end up paying more interest over the long term because they’re never paying down or paying off their house.

So keep that in mind and make sure when refinancing you get a new mortgage that’s right for your situation and make sure the benefits outweigh the drawbacks.

Refinancing your mortgage could save you money, help you pay off your home faster, or unlock the equity in your home if the time is right.

Knowing your refinancing options is key to gaining the maximum benefit from your decision.

Cash-out refinancing is a way to access cash as you refinance your home, allowing you to benefit from the equity in your home to get cash at closing.

With this option, your existing mortgage and any liens on your property are paid off and replaced with a new mortgage giving you funds to meet your financial goals.

Rate and term refinancing is a loan that may lower your interest rate, monthly mortgage payment, or may let you pay off your home sooner with a shorter loan term.

It may be a good option regardless of who your current mortgage is with and might be right for you if you are looking to stay in the property.

Now that you know the pros and cons of refinancing your mortgage, here’s how you can refinance your mortgage THE SMART WAY and save money doing it.

If you find this article and video helpful, please consider sharing it with your friends. I am sure someone, somewhere will thank you for it.

Good Karma Baby…

Next steps: How to get the best refinance rate

Once you’ve determined why you want to refinance and the type of loan you want, you’re ready to shop lenders and compare refinance rates.

Get quotes from at least three mortgage lenders, including a mortgage broker, a bank, and an online lender.

Be sure to compare their rates as well as fees and other charges that could add to the overall cost of the loan.

Learn more:

• How to choose the right kind of refinance for you

• How much home equity do I need for a mortgage refinance?