Refinancing a home mortgage replaces your original loan with a new one. Doing so offers numerous advantages, potentially lowering your current interest rate, reducing monthly payments, eliminating Federal Housing Administration (FHA) mortgage insurance payments, changing your loan type, or accessing the equity in your home. Could you benefit from refinancing your mortgage? Here are some things to consider before getting started:
Before refinancing your mortgage, you need to know where you stand financially. Having a high FICO score is ideal, helping you obtain a lower refinance rate, better monthly payments, and more.
A FICO score of 800 or higher is considered exceptional. A score of 740-799 is very good, 670-739 is good, and below 669 is fair to poor. A low credit score or no credit history can result in higher interest rates, whereas a decent credit rating communicates to credit unions and banks that you’re financially responsible, simplifying the refinancing process.
There are multiple types of refinance loans available. Before going through the steps to refinance a mortgage, you should understand your options:
Equity is the difference between your home’s current value and the balance of your remaining mortgage. To calculate your equity, subtract the balance of your mortgage from your property’s market value. This calculation will help you determine the best offers available.
Which lenders provide the best refinancing options? It’s ideal to check out at least 3-5 different lenders. Try to submit all applications within 14 days to lessen the negative impact of multiple hard credit pulls. You will need to provide personal information such as current income, mailing address, credit rating, employment history, and more.
To identify the best offer, look over the Loan Estimate provided by each lender. Refinancing through a credit union like Texas Tech Credit Union can help you secure lower interest rates and better loan terms.
Once you’ve selected your preferred lender, you will have to decide whether you want a fixed-rate or adjustable-rate mortgage. You can also change term lengths. Do you want to refinance into a longer loan with smaller monthly payments? Or do you want a shorter-term length to pay down your mortgage in less time?
One of the final steps in refinancing a mortgage involves an appraisal. Not all lenders require this step, but an appraisal and inspection should be scheduled after locking in your interest rate.
The final step to refinance a mortgage is closing. Your current mortgage is paid off during this step, and you obtain a new loan. This step is also when you pay any closing costs or additional charges.
Interested in refinancing your home mortgage? Connect with one of our mortgage loan officers to discuss your options. We can walk you through the process and answer any questions that you may have along the way.