In simplest term,involves taking out a new mortgage loan while paying down the existing loan. The refinanced mortgage should always be structured in such a way that the terms of the loan are advantageous relative to the terms of the existing mortgage, so that it is beneficial to the person.
There are many good reasons to refinance a mortgage, in case of homeowners today. Refinancing is capable of offering a host of potential benefits provided it is done under correct and right conditions. These benefits include- lowering your monthly mortgage payments, saving you money on total cost of your loan, allowing you to out on some of your home equity for use in paying down other debt- or for paying bills.
One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% savings is enough of an incentive to refinance. Reducing your interest rate not only helps you save money, it also increases the rate at which you build equity in your home, and it can decrease the size of your monthly payment.
Three steps to best home refinance are-
- Understanding where today’s mortgage rates are in their historical context-
There are two main factors upon which the rate for which you qualify today will depend- a. where average rates are today (relative to average rates of the recent past) for the type of loan you want, and, b. your current credit score.
You have to start by having a look online at today’s rate. You have to attain knowledge and understanding of where rates are relative to the rates of say, 3-12 months ago. You also have to look at where rates are today relative to that of your existing mortgage loan.
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- Do whatever it takes in order to increase your credit score
If your credit score is low, then you have to work upon it till it reaches at the optimum level to be eligible for loan. Unless your FICO score is already at 760 or above (which is considered a premium credit score), you will likely benefit from working to improve your score. You should start by running your credit report. Thereafter, find out if there are any errors apparent on your report. Errors should be corrected immediately as soon as you find them.
- Submit refinance applications to your current lender and to three others
This is the last step where you are finally ready to apply for refinance loan, before applying you have to ensure that you got a quote from your current mortgage lender. But, you must not stop there: apply to at least 3 other lenders, as well. This is because by applying to multiple lenders can you hope to find the one that will offer you the lowest rate. This in turn will be beneficial to you only.