Refinancing a mortgage is all about savings. It can either save you money with a lower rate, lower monthly payments, shorten the term, or get rid of mortgage insurance. Before you apply with lenders, crunch the numbers to see if refinancing your existing home loan is beneficial. The Metropolitan Mortgage Refinance Calculator will provide you with an idea of how much you can potentially save (or lose).
What is mortgage refinancing?
Mortgage refinancing is when you replace your preset home loan with a new one. When you apply for a refinance, it entails a check of your credit, income, and employment history. A mortgage loan is underwritten through an automated underwriting system to determine eligibility and whether we will need an appraisal.
When refinancing, the new loan pays off your existing loan and closing costs, leaving no out-of-pocket costs. Most people are looking to refinance lock in a lower interest rate and monthly payment, or shorten the loan term. You may want to consider a cash-out refinance.
, which allows you to access the equity in your home, which is the difference between what you still owe and its current value. Lenders limit the amount of cash-out to 80 percent of the home’s total value on most loan types. Ideally, you will obtain a lower interest rate in the process. The money you receive in cash-out can pay off higher-interest debt or make home improvements.
How much does it cost to refinance?
While a refinance can save you money in the long run, you will encounter similar fees when you first bought your home. Such as:
- Lender fees: including underwriting and points should you want to buy down the rate
- Third-party fees, such as the appraisal fee (if applicable), document recording, and a credit report
- Title search and recording fees
- A new escrow account, if applicable
Closing costs vary depending on the new loan amount, credit score and debt-to-income ratio, interest rate, and loan program.
Shopping around for a mortgage lender who offers a competitive interest rate and the lowest fees is worth your time. More importantly, use a lender to structure the loan with the cheapest closing costs and rate based on your term of ownership, and this ensures you will benefit with the most significant savings.
What is a break-even point on a mortgage refinance?
It is essential to calculate your break-even point to determine if a mortgage refinance is even worth it. A break-even point is determined by dividing the monthly savings by the total closing costs, and this will result in the years it will take to recoup the closing costs.
Refinancing makes sense if you plan to stay in your home longer than the break-even point; otherwise, you could lose money. If you plan to keep your home for a short time, a no-closing cost option would be better.
How long do you plan to keep your home?
Before using our refinance calculator, consider how long you plan to keep your home. Homeowners always look for the lowest rate; instead, they should look for the cheapest financing based on the remaining term of ownership. An experienced lender can run comparisons to show you the best financing for your situation.
What are common reasons to refinance a mortgage?
There is a variety of reason to refinance your home. Here are some of the most common reasons to refinance a mortgage:
- Lower interest rate and lower monthly payments. If current mortgage rates are less than your present rate. Or you have improved your credit scores or improved your debt-to-income ratio. You might be eligible to refinance to a better rate today.
- Switch from an adjustable-rate mortgage to a fixed-rate loan. Borrowers who took out an ARM want to refinance to a more stable fixed-rate mortgage.
- Take cash from your home’s equity. A cash-out refinance lets you liquidate your home’s equity by replacing your existing mortgage with a new, larger loan amount and taking the difference in cash.
- Remove a borrower from the mortgage. Divorce is another reason to refinance. You must refinance to get a former spouse’s name from the mortgage. Also, you might need to refinance if you co-signed a home with another person. The borrower refinancing the loan into their name will have to qualify on their credit, income, and employment.
- To get rid of mortgage insurance. Borrowers may refinance to eliminate private mortgage insurance from their payments. Removing PMI can create an immediate financial benefit in most cases. Some Federal Housing Administration, known as FHA loans, mortgage insurance premiums remain for the life of the loan. You would need to refinance into a conventional mortgage to eliminate PMI. You need at least 20 percent equity in your home to avoid MI.
What are the following steps to Refinance?
After you’ve run the numbers and decided that refinancing makes financial sense, then it’s time to apply to refinance. We guarantee lenders closing costs and will send everything in writing, covering all the new loan details. Make sure to look at the Loan Estimate for a clear picture of the closing costs. We are here to help with your refinance goals.
Where do I find more information on refinancing a mortgage?
Visit our mortgage refinance page for mortgage information. Use our calculators, articles, and tools to help guide you on your refinance journey. Whatever your goals are, our Mortgage Refinance Calculator on this page will help to see if refinancing can save you money. When ready to take the following steps, feel free to apply online or contact a mortgage advisor today.
Are you ready to apply after using our refinance calculator?
Since 1997, Metropolitan Mortgage has been helping countless home owners secure the mortgage products and services they need to help finance their homes. With various mortgage programs offered, we are the number one mortgage resource for borrowers in Kansas and Missouri, and the rest of the Midwest region. We have been a family-run business since 1997 and work hard to help borrowers realize their dreams of homeownership. Contact us today if you have questions about applying for a mortgage.