How (and When) to Refinance Your Home

If you're a homeowner, there's a good chance you've been thinking about refinancing your home at some point. But before you jump into the refinancing process, there are a few things you should know. Here's everything you need to know about refinancing your home.

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What is Refinancing?

Refinancing is the process of taking out a new loan to pay off an existing loan. When you refinance your home, you'll work with a lender to get a new mortgage loan with different terms than your original mortgage loan.
For example, let's say you took out a 30-year fixed-rate mortgage loan for $200,000 five years ago. Your monthly mortgage payment would be around $1,100 per month, assuming you're paying 4% interest. But now, interest rates have fallen to 3%, so you want to refinance and lower your monthly mortgage payment.
If you refinance and get a new 30-year fixed-rate mortgage loan for $200,000 at 3%, your monthly mortgage payment would drop to around $940 per month—a savings of $160 per month.

When Should You Refinance?

Now that you know what refinancing is, let's talk about when you should do it. In general, you should refinance if it will save you money or help you achieve a financial goal—like consolidating debt or paying off your mortgage faster.
But keep in mind that refinancing isn't free—you'll have to pay closing costs when you refinance (more on that later). So, if it will take several years for you to recoup those costs through savings on your monthly mortgage payment, it might not make sense to refinance right now.
You should also keep in mind that while refinancing can save you money in the short term, it also extends the overall length of your loan—meaning you'll end up paying more interest over the life of the loan. So if your goal is to pay off your mortgage as quickly as possible, refinancing might not be the right move for you right now.
And finally, while interest rates are at historic lows, they're not going to stay low forever—so if you're thinking of refinancing, now is the time to do it!

How to Refinance Your Home :

Now that we've talked about when to refinance let's discuss how to do it. The first step is to shop around and compare lenders—look for low interest rates and low fees. Once you've found a lender you're comfortable with, it's time to begin the application process. The process is fairly similar to when you got your original mortgage—you'll need to submit financial information like tax returns and pay stubs so the lender can determine whether or not you qualify for the new loan. If everything looks good and your application is approved, it's time for closing! At closing, you'll sign all the necessary paperwork and pay any fees associated with the loan (like origination fees or appraisal fees). And that's it—you're done! You've successfully refinanced your home and hopefully lowered your monthly payments in the process.

Now that we've covered everything from what refinancing is to how to do it (and when), hopefully you have a better idea of whether or not refinancing makes sense for your current situation. Remember: refinancing can save you money but only if it makes financial sense for YOU. So be sure to do your research before making any decisions!