Deciding whether or not it makes sense for you to refinance begins with the following question of what your financial goals are. Whether you would like your monthly payment to be lower, have a lower interest rate, have a shorter term or a cash-out refinance, you can use our refinance calculator to help you decide on whether or not refinancing will help you reach your goals.
Before getting started, it is imperative to take into consideration why you would like to refinance the loan on your home, to begin with. That is what guides the entire mortgage refinance process.
Usually, the goal is to lower your payment. Refinancing with another entire 30-year term may be very tempting to reduce the monthly payment. However, that means you will have to take even longer to pay your house off, and you will pay more interest.
You will want to consider how much interest you paid already on your old loan and the amount you will be paying with the refinance. Mortgage loans have interest front-loaded into them, so the longer you have paid, the more each of your payments will go toward paying the principal balance off – and the more interest you will have paid already. So when you compare what you have paid in interest to date versus a refi, that will provide you with a good idea of what your total loan costs will be with either option.
If you resist the urge to extend the term on your loan, you can refinance instead to cut the term down and obtain a lower interest rate, and that can reduce the amount of interest that you pay significantly over the loan term.
It is a balancing act to choose a good loan term on your mortgage to refinance between lowering your borrowing costs and an affordable monthly payment.
Our refinance calculator uses Today’s current rates. After you have entered your numbers are press the “Calculate” button, you will given a list of recommended rates, terms and loans. If it looks good to you, go ahead and apply online or contact a Home Loan Professional to get started.
To reduce your monthly payment, search for a refinance option that will you do one or several of the following things:
Get a lower interest rate locked in – The higher that your interest is, the more you’ll end up paying on your mortgage, in the future as well as now. When you finance and get a loan that has a lower interest rate you can obtain a lower payment as long the length on your mortgage term is not shortened.
Stop having to pay for private mortgage insurance (PMI). When your equity is less than 20% on your original house loan, there is good chance that you have to pay for PMI. You may be able to refinance if your house has gone up in value or if there is enough equity to reduce that costly monthly payment.
Take out a longer loan term – Whenever you are refinancing a longer-term loan, then you are stretching out how much you owe over a longer time period. Although you might pay more interest in total, you may have a lower monthly payment.
It will allow you to own your own home sooner than you can with the mortgage you have currently, and that may get you into a better financial situation in the future. Meanwhile, you will see a significant amount of interest reduced, given that loans that have shorter repayment periods will have lower interest rates.
If there is enough equity in your house, you might be able to refinance to get cash out. When you take cash out that means you are refinancing your home with a more significant loan amount. The new loan pays your existing mortgage off, and you will get to keep the difference.
Many homeowners take out cash to fund home improvements or pay higher interest debt off. The cash you receive from a cash-out refinance is yours to spend on whatever you want is tax free.
After you have a good reason for refinancing and have determined that it’s the right time for you to do it, then it’s time to crunch the numbers. When a mortgage refinance calculator is used it can help you with shopping to find the best mortgage for you.
You are going to need to know (or make an educated guess) on your new loan amount and interest rate.
After you have inputted the data, this tool calculates what your monthly savings will be, along with your lifetime savings and new payment, and accounts for what the estimated costs of the refinance will be.
When you use a refinance calculator it gives you an excellent idea of what you can expect. What is even better is that after you have a couple of estimates from a few mortgage lenders, then you can enter in the terms you have been offered into the calculator so that you can determine which provides you with the best deal.
It is now time to do some legwork – or most likely phone calls and web work. You will want to search for the best mortgage refinance rate and obtain a loan estimate from every lender. Each of the potential lenders must provide you with an estimate within a three day period of getting necessary information from you.
These estimates are a basic three-page document detailing the loan terms, estimated fees, and closing costs, as well as your projected payments.
Compare the details of the loan for every lender and then determine which one will be the best for you. It is an excellent time to use the mortgage refinance calculator to your best advantage.
– Determine what your goal is. We have discussed this: Make sure you are refinancing for a good reason. Your aim to shorten – or maintain at least – the current loan term that you have while getting a lower interest rate.
– Find out what your current credit score is. Obtain your credit sore and check out your credit history. The better that your credit score is, the lower the mortgage refinance interest rate offers that you will receive.
– Research the current value of your home. Check out recent home sales similar to yours in your neighborhood.
– Shop around for the best mortgage rate. Begin by checking online to compare refinance rates. You can do as much shopping online for rates as you would like, but make sure that you limit the time frame for getting a loan application submitted, or letting a lender pull your credit report, to a two-week time period to reduce the impact that it has on your credit score.
– Know what your all-in costs are. A home loan refinance may trigger some fees: tax transfer points and fees, recording fees, title insurance and research, credit report charge, an underwriting fee, a document processing fee, origination fees, appraisal cost and more. Keep in mind that each lender you are considering will provide you with a clear estimate on the mortgage loan fees. Don’t go in blindly and agree to a ‘no-cost refinance.’ That means the upfront fees are being moved by the lender to your loan’s ongoing costs, in the form of either a higher loan balance or higher interest rate.
– Gather your paperwork. These days it can be tougher since so many people do their financial business online. However, you will need to download, print, or gather your pay stubs, statements and anything else that the lender asks for as part of the loan process.
– Lock your rate it. You will need to determine when and whether to lock your mortgage refinance rate in with your lender. That means that the rate that you are offered on a new loan won’t change during the time period specific before closing. It is more of an art than a science.
– Make sure you have cash available. Most likely there will be closing costs, insurance, property taxes and other expenses that will need to be paid at closing, so make sure you set aside enough money to cover these costs. Your loan estimate will list them all out, so there shouldn’t be any surprises. Those costs in some cases can be added onto your mortgage balance. On one hand that will make your upfront costs lower, but on the other hand, will increase the amount that you owe on your house.
If the amount that you ow is more than what your house is worth, you might want to consider a government-sponsored mortgage program for your refinance solution. The programs tend to change names and come and go every so often – but in general, they enable homeowners to refinance their mortgages even when they don’t have a lot of equity in their homes.
Also, on any refinance, make sure you take into consideration how long it is going to take to recoup the expenses and fees.
However, when you refinance with a suitable term, a good rate, and for the right reason, it can help to improve your financial position.
Prodigy Lending is a DBA of AmCap Mortgage, Ltd. (NMLS ID# 129122 – www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/129122), an Equal Housing Lender.
Managing RMLO: Jason Turner (NMLS #286357)