With lenders offering low mortgage rates, it may make sense to refinance your mortgage loan to save money and repay your loan faster. Here’s what you need to know about mortgage refinancing. 

Mortgage refinancing – what is it?

Refinancing a mortgage essentially means you apply for a new home loan to replace your current one. Mortgage refinancing helps you save money if you refinance into a loan with an interest rate that’s lower than what you currently pay. 

When does it make sense to refinance your loan?

The best time to refinance your home loan is when mortgage rates are low – lower than what they were when you closed on your current loan. Or, if your credit score has improved significantly since you got your current loan, you may be able to get a better rate when you refinance. 

How to refinance your home loan

The process of refinancing your mortgage is pretty similar to what you did to get your current home loan. 

Step 1: Set a financial goal

There has to be a good reason for you to consider refinancing your loan. Whether it’s to shorten your loan term or lower your monthly payment, make sure to determine the reason and set your financial goal. 

Step 2: Check your credit score

To be approved for a low-rate mortgage loan, you will need to have a good credit score. That’s why it’s important to check your credit score and report before you start researching your loan options. 

Step 3: Check how much equity you have in your home

Your home equity represents the current market value of your home, minus any liens that are attached to the property. Lenders will typically need you to have at least 20 percent equity in your home to qualify for a refinance. You could refinance with as little as 5 percent equity, but you may have to pay higher interest and fees.

Step 4: Compare loans offered by different lenders

To get the lowest interest rate, it’s important that you get quotes from multiple lenders. In addition to checking the interest rate, make sure to also consider the other fees. 

Step 5: Gather your documents

It’s important that you get your documentation ready, so you can get the mortgage refinancing process started soon. 

Step 6: Prepare for the home appraisal

Some lenders may need to appraise your home to establish the current value. You may need to pay a few hundred dollars for this. 

Step 7: Close on the loan

Once you’ve completed all the documentation, you can close in on the loan. 

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