by Emily Hechler 
Chances are, you’re not in the same stage of life that you were in when you originally bought your home. Your cost of living may have changed due to factors like a growing family, new vehicle purchases, and other life changes. The good news is that you can refinance your mortgage to better fit your new lifestyle and financial situation.
Should You Refinance?
Refinancing a mortgage means that you take out a new loan to pay off your first mortgage, and now make payments on the new mortgage. People generally refinance a mortgage for two reasons, either to lower their monthly payment or to pay off their mortgage faster. If you’re not sure if refinancing is right for you, see if you can relate to any of these stories:
- Curtis inherited a sum of money when his grandpa recently passed away. He wants to use this money to gain equity in his home.
- Nathaniel and his wife are down to one income. They want a lower monthly payment to have some wiggle room in their budget, even if this means paying off their house for a few more years.
- Bailey has worked hard to increase her credit score over the past 5 years. Plus, the economy is stronger and average mortgage rates are dropping as a result.
If your situation sounds like these, refinancing a mortgage could be a great idea! Before you start the process, run the numbers to make sure that you’ll get the outcome you want. Use our Time to Refinance calculator to get the answer.
Get Yourself Ready
Just like when you first bought your home, there are steps you need to take to prepare yourself to refinance your home. The lender will need proof of income again, so find your paystubs. You will also get a hard credit check. You can use a free credit checking tool like CreditKarma to make sure your credit score is where you would like it to be before getting the official check. A higher credit score could mean a lower interest rate.
Get Your House Ready
When you refinance a mortgage, you essentially take out a new mortgage that pays off your current mortgage. This means that your house will need a new appraisal. If you’re on the fence about making home improvements, this is a great time to complete those projects. These upgrades can increase the value of your home, which increases your equity in the home. This works to your favor when you refinance.
Tip: If you’ve paid for at least 20% of your home’s value before you apply to refinance, you can get rid of your PMI.
Shop for the Best Rate
Talk to different lenders about how low of a rate they can get for you. Be diligent in your search so you know you are getting the most out of refinancing your home. Make sure you inquire with Alltru to find out what rate you can get with us.
Keep in mind that refinancing your home means that you will have some additional fees to pay with closing costs, so you’ll be paying some up front too. Expect this total to be 2-5% of the sale price. As you note the current rates, go back to the Time to Refinance calculator to see how much of a difference the different rates will make on your monthly payments. For Jessica, she was able to drop her rate by 0.7% and save $200 a month on her mortgage payments.
Get Under Contract
Once you choose your new lender, you can lock in your interest rate. Over the next 30-60 days, you’ll finalize the remaining paperwork required to refinance. You will also complete a refinance appraisal. A refinance appraisal is necessary since the value of your home has likely changed due to fluctuations in the economy and any home improvements you’ve made. The appraisal helps the lender confirm that you won’t borrow more money than your home’s current value. During this time, you’ll also go through underwriting – where your lender verifies your personal, financial, and property information. If all goes smoothly, the final step will be closing day, and you’ll be ready to refinance.
Finally, Close on Your New Mortgage
Just like when you closed on your home the first time, you’ll sign a Closing Disclosure a few days before you close. This document contains the final numbers for your loan. The day that you close, you’ll sign your loan documents and pay for closing costs unless your closing costs are built into your refinanced mortgage.
That’s it! Refinancing can be a smart option to help save you money over the coming years as you pay back your loan. We’re here to support you every step of the way in your refinancing journey.
