62.9% of homeowners still have a balance left on their mortgage. As their mortgages age, many choose to go the route of refinancing their home loan.
Refinancing your mortgage allows you to get a lower monthly payment, shorten the length of the loan, or a different interest rate. It can be a smart financial move but also it’s slightly overwhelming because there are so many routes.
There are several types of refinancing and choosing the right one will make all the difference for your best outcome. We’ve put together a full guide to the best options to help you make a more informed decision.
Types of Refinancing Options
Since there are so many different types of home mortgages available, it makes sense that there is a variety of refinancing options as well.
Each option comes with a slightly different application and approval process, as well as differing results. It’s helpful to know what your goal is with refinancing, (a lower payment, shorter loan life, or new interest rate) to pick the loan most likely to give those results.
Just like getting an original mortgage, the process for refinancing can be quite involved so you’ll want to know which type is best before you begin so you don’t waste time.
When people think of home refinancing, they’re likely thinking of a conventional refinance. This is so common because it allows people who have experienced a change in their financial situation to get a new mortgage that reflects that.
Another popular reason choose this option is because it eliminates the need for mortgage insurance.
Many lenders will require their new customers to add mortgage insurance to their loan. This covers them if, for whatever reason, the customer misses payments or defaults on the loan.
A conventional refinance can often eliminate that line item on each mortgage payment, reducing the overall cost.
A streamline refinance is probably the easiest type of refinancing option to secure. But it’s also very limited in who utilize this option.
In the simplest terms, a streamline refinance switches out one loan for another but they have to be the same type of loan. The type of loan that qualify includes FHA, VA, or USDA.
To get these types of loans you have to fall into very specific categories and qualifications.
When you’re getting a streamline refinance, you can switch out some of the terms of the loan but it will still be the same type requiring the same things from you.
The cash-out refinancing option is for those homeowners who have seen a great increase in the value of their home and would like to cash in on that equity. Essentially, they’ll get a new loan that includes the added value and receive the difference.
This type of refinancing can be a bit risky and lenders will have very strict requirements before approval. Generally, they have to have a higher than average credit score and proof of increased value.
Many people want this option when they’re looking to make or pay for renovations to the home or purchase another property.
Just like with getting an original mortgage, the exact process for refinancing your house will depend on your specific lender. It’s important to keep in good contact with them throughout the process to keep on the right track.
But there are some helpful things to know before you get started that will make the time go quickly and you get the new loan terms you’re looking for.
Timeline for Refinancing
The biggest question that homeowners considering refinancing have is when should I refinance? Unfortunately, there’s no straightforward answer to this question. But there are times when it’s more common for a homeowner to refinance than others.
If your financial situation has changed since you got your original mortgage, refinancing may benefit you.
These changes would include lowering your overall debt, increasing your credit score, or changing your income. All of those factors significantly impact the terms you get for your loan, like the lifespan and the interest rate.
It’s also a good idea to look into refinancing if your loan terms are about to change and you don’t want that.
Another reason many people look at refinancing is when they need to get extra money or reallocate their budget and assets. Taking a regular look at your mortgage and possible options can keep you with the best loan terms.
Once you’ve decided that you want to look more seriously at your refinancing options, the first step is to talk to your lender to find out specifics.
Working with the lender you can evaluate what a new loan will look like and how that will (or won’t) benefit you. It’s important to get professional advice and take a realistic look at how it will affect your overall budget.
It’s important to remember that you’re not obligated to keep your mortgage with the same lender. So take the time to shop around and find the very best fit.
After you’ve chosen your option, you’ll have to go through an application process. This is similar to obtaining your original loan where you have to prove income (through taxes or pay stubs), give accurate information about the property, and show your full financial status.
The lender will go through your application to see if you meet their qualifications. Once you are, you’ll go through a similar closing process before the loan goes through.
Refinance Your Home for Better Finances
When it comes to refinancing your home mortgage, you really want to get things right. Choosing the best option from the types of refinancing will help you better be able to afford your home and save you money overall.
One of the best tips for successfully refinancing is to work with a professional lender that you can trust. They’ll be able to guide you through the process to make it quick and easy.
If you’re interested in learning more about your refinancing options and get a quote, contact us today!