How to Refinance Your Mortgage (and Lower Your Monthly Payments)
- What does it mean to refinance your mortgage?
- How does refinancing work?
- Refinancing loan terms
- Steps to refinance your home loan
- 1. Establish your financial goal
- 2. Review your credit score and mortgage qualifications
- 3. Compare mortgage lenders
- 4. Apply with multiple lenders
- 5. Choose a lender
- 6. Lock-in your interest rate
- 7. Prepare for the home appraisal
- 8. Close on your new loan
- Pros and Cons of Refinancing
- The bottom line
What does it mean to refinance your mortgage?
How does refinancing work?
- Good credit score (620 or higher)
- 20% equity (or more) in your home
- Low debt-to-income (DTI) ratio (43% or lower)
Refinancing loan terms
Steps to refinance your home loan
1. Establish your financial goal
2. Review your credit score and mortgage qualifications
Assess your credit report
Determine your DTI ratio
$2,000 / $7,500 = .267 .267 x 100 = 26.7%
Review your home equity
3. Compare mortgage lenders
4. Apply with multiple lenders
5. Choose a lender
6. Lock-in your interest rate
7. Prepare for the home appraisal
- Make sure everything is in working condition - Test lights, outlets, thermostats, and other systems to ensure they work well. If they don’t, be sure to make the necessary home improvements needed prior to your appraisal.
- Reduce clutter - Too much clutter can make it hard for an appraiser to accurately assess your home’s condition. Reducing clutter makes your home appear cleaner and better cared for, which can also boost your appraisal number.
- Invest in small upgrades - You don’t want to start a full renovation project before an appraisal, but small upgrades can boost your home’s value. Updating cabinet hardware, installing eco-friendly and modern light fixtures, and updating your appliances are some ideas to consider.
- Don’t forget about the outside - Improve your home’s curb appeal with attractive landscaping and a quick clean. Powerwash your home’s siding and clean windows prior to your appraisal.
- Assess similar property values - Lastly, be sure to research comparable homes on your block or nearby streets and review their current home values. Search for properties similar to yours in terms of square footage, the number of bedrooms and bathrooms, and floorplan. Have this information ready in case the appraisal comes in lower than expected.
8. Close on your new loan
Pros and Cons of Refinancing
Lower monthly payments
Save more over time
Access to home equity
More expensive long-term costs
Out-of-pocket closing costs
Extended break-even period
The bottom line
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