How to Refinance Your Home and Lower Monthly Payments

Everyone needs to know how to refinance your home. The need to refinance can happen for many reasons job layoffs, illness, death of a family member etc. When life throws you a curve ball you need to be prepared and knowing your finance options is a great way to start.

Refinancing your home can lower your interest rate, lower your monthly payment and put extra money in your pocket to buy other necessities or give your home a new makeover.

How to Refinance Your Home

Shop around for a mortgage

As a homeowner you can shop around or enlist the help of a mortgage broker. Before you enlist a mortgage broker or look for yourself be sure you know what you can afford a month. Choose payments and terms that fit your budget. Terms are usually 15, 20, 25 and 30 years with 15 being the highest in terms of monthly payments because the loan is paid in half the time. If you can afford it that's great but if not then a 30-year term may fit your monthly budget better.

Shop online or check with your bank to see what options are out there and who can offer what you are looking for when it comes to refinancing your home. Many online lenders will offer lower interest rates and quicker turnaround to obtain your business. Be sure to know what the closing costs will be on approved loans. Each lender will be different.

Obtain a Home Equity Loan

A home equity loan is another great way to obtain money you need for major purchases and a way to help you refinance your home.

A home equity loan is based on the equity in your home meaning the value less any money you have left owing. Before you consider a home equity loan, know how much you have left on your current loan. This helps determine the amount of equity you have in your home.

Find out how much you can borrow and what the interest rates will be. Many home equity loans allow you to borrow the total debt of your homes value. Interest rates are usually cheaper than a mortgage but can last only a year at that rate so be careful.

How Long Will you stay in Your Home

Ask yourself how long you plan to live in your current home. Unbelievably it makes a difference. In order to come out ahead a homeowner needs to stay in the home for at least 3 years for it to be worthwhile. This enables you to secure a 1% lower rate.

Contact Your Current Lender

Your current lender knows your finances and what you can afford because they have already worked with you and this can benefit you better than finding someone new. It can also save on closing costs and make the refinancing of your home go more smooth and quickly.

Have Information Handy

Have a copy of your tax returns, banking statements, credit card statements, proof of homeowners insurance etc handy when you go to refinance your home. This makes the process go much faster when you have everything readily available.

Lock in the Interest Rate

When applying to refinance your home lock in on the interest rate. This allows you to get the best rate without fear of it going up later.

Sources:

Bank rate - Home Equity Basics