Refinancing your mortgage is a pretty natural step for you to take within a few years of you buying your home. Refinancing your loan will help you save money, as well as reevaluate the worth of your home and improve your equity. You may be tempted to refinance for a full 30 year loan, because it will significantly decrease the monthly cost of your loan, but in doing this, you’ll end up paying more interest. Ultimately, your goal should be to refinance to lower not only your interest rate, but lower the amount of interest you’ll pay over the life of the loan.
Research your home’s current value
You know why you want to refinance, so now you should probably do a bit of research on the current value of your home. You can usually find a home value tool online that will help you get an idea of what your home would currently sell for. You can also talk to your mortgage lender or realtor and ask them to pull numbers based on homes in your area that have sold recently.
Compare refinancing rates
This is a part of the process you want to be careful of! Refinancing your loan will require hard inquiries on your credit, just like when you bought your house. Avoid doing this more than necessary, otherwise you risk negatively impacting your credit score. You can shop rates online, but it may be good to talk to your current lender first and see what they can offer you.
Get to know the costs
Just like with initially buying a home, there are going to be some costs and fees involved with the refinancing of your home loan. Your lender can provide you with a loan estimate and go over these potential fees with you. Usually, you are looking at an application fee, the cost of an appraisal, credit report charge, document processing fee, underwriting fee, origination fee, recording fee, tax transfer fees and points, and title research and insurance. If you are told you can have a “no cost refinance”, be wary, because this just means that these costs are getting put back into your new loan in the form of either a much higher interest rate or a higher overall loan.
Lock in your rate
Once you’ve selected your lender, you’ll want to lock in your rate to prevent a future inflation changing things.