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Refinance Your Mortgage Now While Rates Are Still Historically Low

A home purchase is one of the most exciting and expensive financial transactions a person will make. Because homes cost so much, most people choose to buy one by getting a mortgage. They borrow money from a lender at an agreed upon interest rate for a designated length of time. When the loan is paid off, the house is legally theirs.

refinanceThe rate lenders charge for interest on a mortgage does not stay the same. They fluctuate, sometimes even from day to day. Because they can change frequently, Person A may end up getting a lower rate than Person B. It seems unfair that one person could get a better rate and save money just because they had better timing on their home purchase.

That’s where refinancing comes in to play. If done properly, it can end up saving homeowner’s money in the long run.

What Does Refinancing a Mortgage Mean?

When a person refinances a mortgage, they essentially pay off their existing mortgage with a new one. The new mortgage, therefore, will have different terms and arrangements than the first one.

Why would anyone do this? There are a variety of reasons, with these being the most popular:

1. To lower their interest rate. A lower interest rate means less paid in interest over the length of the loan.

2. To lower their monthly payment. A lower mortgage payment can help families meet other monthly budget needs.

3. To adjust the terms of the loan. A person with a 30-yr. loan could convert that into a 15-yr. loan, thus reducing the length of time for payments and interest accumulation.

4. To change from an adjustable interest rate (ARM) to a fixed rate (FRM). Adjustable rate mortgages change periodically, thus changing the borrower’s payment. Conversely, fixed rate mortgages do not change over the life of the loan. Therefore, the borrower knows their payment will always remain the same.

Why Refinance a Mortgage Now?

The most important reason you might look into refinancing is that interest rates are still near historical lows. Check out this historical chart courtesy of Freddie Mac:


As you can see on the right side of the chart, interest rates on a 30-yr. fixed mortgage (blue line) have been hovering between 3.5% and 4.5% since 2013. That represents the low end of the chart that dates back to 1971. So, if you’ve bought a house in the last 5 years it might not make sense to refinance. You already have a low rate.

However, if you bought prior to that it makes a great deal of sense to at least look into refinancing. My wife and I bought our second house in 2002. Fixed rates then were near 7%. We decided to get a lower rate by doing an adjustable rate mortgage that would change after 7 years. We didn’t think we’d be in the house for 7 years so it seemed like an appropriate risk.

However, fixed rate mortgages continued to drop. Our life situation also changed and we realized we would be in the house much longer than seven years. So, we refinanced once to convert our 7-yr. ARM to a 30-yr. fixed rate mortgage. We refinanced a second time awhile later to get a lower 30-yr. interest rate.

Why would we go through all that hassle? Quite simply to save money. Each time we refinanced our financial situation improved. It improved so much so that we began to throw some extra money at the mortgage each month. With additional career changes and an improved financial position, we were able to pay off our mortgage early.

If you’d like to see the math on how a lower interest rate or shorter term could help you save money, check out this content from LendingTree.

6 Steps to Refinance

So how do you refinance a mortgage? The steps will take a little bit of time but can be navigated without much hassle.

Step One: Determine your goals. What are you trying to accomplish? Are you trying to pay your mortgage off early or lower your monthly payment? Answering these basic questions first will help you refinance into the right type of loan.

Step Two: Take stock of your current financial picture. This step would include analyzing your monthly budget or creating one if you haven’t done so. You should also check on your credit score and find out how much equity you have in your current home.

refinanceStep Three: Do some preliminary research. A central part to a good monthly budget is being able to afford your mortgage payment. You can use a good mortgage calculator to help with that. Begin plugging in the variables (your current mortgage payment, interest rate, length of loan, etc.) to see what might work for you.

Step Four: Begin to get quotes. The Internet has made finding lenders much easier. You can obtain quotes online and compare them with ease. That’s critical because quotes can change within hours if the interest rate market is moving quickly. As you get quotes, make sure you understand what fees it includes and if there are any additional costs.

It makes sense to interview several lender candidates at this point. You want to make sure you find a competent loan officer that is interested in meeting your needs.

Step Five: Fill out your application. Once you have chosen a program and lender, you are ready to fill out your mortgage application. You will need all your pertinent financial information like bank statements, investment account figures, pay stubs and W-2s or tax returns.

Step Six: Lock in your rate and close the mortgage refinance. You can lock in a rate at any time during the process. A typical lock period might last anywhere from 30-60 days. During that time, the rate you’ve been promised won’t change unless you decide to change your program. You will finalize and sign the new mortgage paperwork during this time.

Refinancing a mortgage is a process but it’s not an extremely difficult one. Take the time to analyze your situation and set your goals first. With this background work completed, you will be well on your way to finding the right lender and rate that works for you.

Questions for Discussion: Have you refinanced a mortgage? If so, why did you do it? How was the process? What other things should consumers look out for during the process?

Disclosure of Material Connection: This is a “sponsored post.” The company who sponsored it compensated me via a cash payment, gift, or something else of value to write it. Regardless, I only recommend products or services I use personally and believe will be good for my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

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