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How to Refinance a Mortgage

You made it through the hardest part: buying a home. Now, you’re ready to refinance your mortgage.

Your financial situation and economic conditions can change a lot in 15 or 30 years. Your monthly budget may get spread too thin due to other major expenses, or on the other hand you may be able to pay your home loan off more quickly thanks to getting a raise. Interest rates may have changed since you first bought your home, affecting how much it costs to borrow money. Due to unpredictable factors like these, it’s very likely that the mortgage you first took out when you bought your home won’t remain the best deal for you.

Thankfully, you don’t have to stick with the same mortgage if better options come along. Refinancing allows you to make changes to your mortgage that will allow you to lower your monthly payment, pay down the loan more quickly, or switch to a different type of mortgage entirely.

To learn more about mortgages, check out this article on the home buying process.
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Here’s everything you need to know:

What is refinancing?

When you refinance your mortgage, you essentially take out a brand-new loan to completely pay off your old one. From there, you make payments on the new loan only. It’s almost like your new loan cancels the old loan out. There is no limit on refinancing – you can refinance multiple times over the life of your mortgage. However, some lenders prefer people wait at least a few months after a refinance to go through the process again.

One thing to watch out for: if your original mortgage charges a penalty for early repayment, refinancing (and therefore paying that loan off early) will trigger that penalty. Ask your lender if this fee applies before refinancing.

Why should I refinance my mortgage?

  • Lower the interest rate: This could mean lower monthly payments and a lower amount of interest paid on the over the overall loan period.
  • To shorten the mortgage’s term: Shaving even a few years off of your mortgage can save you thousands in total interest costs and allow you to build equity more quickly.
  • To lower the monthly payments: If your budget can no longer sustain your current mortgage payments, lengthening the term can lower what you pay each month. The downside is you’ll pay more in interest over the entire term. If you’re struggling to make mortgage payments, refinancing is the right decision for you.
  • To switch to a different mortgage type: Homeowners can refinance to switch their mortgage types. For example, you can switch from an adjustable-rate-mortgage (ARM) to a fixed-rate mortgage, or vice versa. Your lender will know which type is right for you.
At this point, you may have decided you’d like to refinance your mortgage. Here’s a few more questions you might have.

How much does refinancing cost?

Although refinancing isn’t free, if it ends up saving you money in the long-run, it’ll be worth it. It typically costs 2% – 3% of the amount you’re borrowing. You’ll need to repay closing costs, which vary depending on the size of your mortgage, the lender, and where you live. The average closing cost for refinancing is more than $4,000. Closing costs include a variety of fees: the mortgage application, property appraisal, loan origination, title insurance, and more.

How do I refinance?

Start the refinancing process by talking to your current mortgage provider and weighing what they offer compared to other lenders. Whether your finances have improved or worsened, refinancing could be a the right option.

Use our Mortgage Refinancing Calculator to see how much you could save today. Refinancing could bring you major benefits and take you one step closer to reaching your financial goals, so we encourage you to look into it.

We at Alltru are happy to talk through refinancing your mortgage and help you understand if it’s the correct decision for you.