Here’s How To Refinance A Mortgage (And Know If It’s Right For You)

Over the past decade, mortgage refinancing has grown in popularity. Not that big of a surprise, considering we’ve seen a sizable drop in mortgage rates during this time. At the height of the housing crisis in 2008, rates averaged about 6% for a 30-year fixed-rate mortgage .

Currently, the average rate for a 30-year fixed mortgage is about 3.26% , which gives some folks the opportunity to save some serious moola by lowering their interest payments. If you signed on for a higher rate years ago or your financial situation has improved, refinancing is worth considering.

Refinancing a mortgage might not be right for every homeowner, but starting to look at rates and terms could be the first step to being able to save for other financial goals. Here’s everything you need to know about refinancing a mortgage from how to start the process, to figuring out if it’s right for you.

How much does it cost to refinance a mortgage?

Since you’re essentially applying for a new loan, there will most likely be fees if you choose to refinance. Because of this, it’s important to consider those costs compared to the potential savings. A good rule of thumb is to be certain you can recoup the cost of the refinance in two to three years—which means you shouldn’t have immediate plans to move.

Refinancing will generally cost from 3% to 6% of your loan’s principal value, though you should be sure to shop around to make sure you’re getting the best deal.

There are helpful online calculators for determining approximate costs for a mortgage refinance. Of course, this is only an estimate and all lenders are different. The lender will provide final closing cost information alongside a quote for your new mortgage rate.
When you refinance, you also have to consider closing costs. Some lenders may not have origination fees, but instead charge the borrower a higher interest rate.

If you have a great borrowing history and a strong financial position, there are some lenders, like SoFi, that reward such borrowers by offering competitive rates and no hidden fees.

Mortgage RefinancingMortgage Refinancing

What are the steps in the mortgage refinancing process?

The first (and arguably most important) step is to determine what you want to get out of your mortgage loan refinance. There are several mortgage loan types, but “rate and term” and “cash out” are the two most common.

Just as the name implies, a “rate and term” refinance updates the interest rate, the term (or duration) of the loan, or both. You can also switch from an adjustable rate to a fixed rate and vice versa.

It is important to understand that not every refinance will save you money on interest. For example, if you extend the loan terms, you may end up paying more money over the course of your loan.

to boost your credit score. 1
2. Research your home’s approximate value. Check comparable sale prices—not just listing prices—in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this will be helpful in securing the best refinancing rate.
3. Compare refinance rates online. Don’t forget to ask about all costs involved. Most financial institutions should be able to give you an estimate, but the accuracy can depend on how well you know your credit score and LTV ratio.
4. Get your paperwork together. The process will move faster if you have your pay stubs, bank statements, tax filings, and other pertinent financial information ready to go.
5. Have cash on hand. You may have to pay some up-front costs, like property taxes and insurance.
6. The lender will (mostly) take it from here. They will send an appraiser for a home inspection. After the loan documentation and appraisal are submitted, loan officers determine the interest rate and create the loan closing documents. The closing is then scheduled with the refinancing company, mortgage broker, and real estate attorney.

How long does a mortgage refinance take?

The process can take anywhere from 30 to 90 days, depending on your diligence, the complexity of the loan, and the efficiency of the lender or broker.

If you want the process to move fast, look for mortgage lenders who are looking to disrupt the traditional mortgage process by offering a more streamlined service and a better customer experience.

If you’re like most people, you’ve got a life to live and don’t want your mortgage refinance to drag on for months. Keep this in mind while looking for a lender to refinance with.

Ready to check out your mortgage refinance rates with a competitive lender that values your time? SoFi can give you a quote (that won’t affect your credit score! 2) in as little as two minutes.

1. Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
2. To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.

SoFi Lending Corp. is licensed by the Department of Business Oversight under the California Financing Law, license number 6054612. NMLS #1121636.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Mortgages not available in all states. Products and terms may vary from those advertised on this site. See for details.



3 Questions for Anyone Refinancing to a 15-Year Mortgage

3 Questions for Anyone Refinancing to a 15-Year Mortgage – SmartAsset

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If you’re tired of having mortgage debt, refinancing from a 30-year loan to a 15-year loan will allow you to pay it off faster. On top of that, you’d also pay less in interest, as shorter loans come with better rates. Refinancing to a 15-year mortgage has some definite perks, but it’s not always the right move for everyone. Asking a few key questions beforehand can help you decide if it makes sense for your situation.

Refinancing your mortgage can have an effect on your overall financial plan. Talk to a local financial advisor today.

Question #1: Can I Afford the Payments?

Shortening your loan term conversely increases your monthly payments and you need to understand how that’s going to affect your budget before signing on. Seeing your payments increase by several hundred dollars may not mean much if you were already paying extra toward the principal, but it could be a deal breaker if it becomes too taxing on your income.

If you have a $200,000 mortgage, for example, refinancing to a 30-year fixed term with a 4 percent interest rate would put your monthly payments at about $955, assuming that you made a 20 percent down payment. Going with a 15-year loan instead with a 3 percent rate would increase your payments to nearly $1,400 a month. That’s roughly the equivalent of a car payment, so if you don’t think your budget can handle it, you want to know that sooner rather than later.

Question #2: Is the Savings on Interest Worth the Higher Payment?

Refinancing to a 15-year loan will certainly save you some money on interest, but it’s important to figure out whether it’s justified by those higher payments. Using the same $200,000 mortgage as an example, that 30-year fixed loan would initially cost you about $666 per month in interest. On the other hand, you’d start out paying about $498 per month in interest by choosing a 15-year fixed mortgage.

Obviously, that’s a pretty big difference, but you also have to take into account what the extra money you’re spending on payments would be worth if you invested it instead. If the difference in your payments with a 15-year loan versus a 30-year loan comes to about $168 a month, that’s money you could put into an IRA.

Question #3: Will I Risk Losing Out on a Bigger Tax Break?

Homeowners can ease the sting of all that interest they’re paying on a 30-year loan by writing it off at tax time. The IRS allows you to deduct interest you pay on primary and secondary mortgage loans as long as you itemize. Deductions reduce the amount of your income that’s subject to tax.

When you refinance to a 15-year loan, you can still take the deduction for your mortgage interest but it loses some of its value since you’re not paying as much interest. You’ll also have less time to benefit from it, which may work against you as you get closer to retirement. If you’ve built up a substantial nest egg and you’re expecting your tax rate to increase during your golden years, the loss of the mortgage interest deduction could make a significant difference in the size of your tax bill.

Bottom Line

If you’re heavily in favor of getting rid of your mortgage, refinancing to a 15-year loan can put you on the fast track to mortgage debt freedom. Just be sure you’ve weighed all the pros and cons first so you don’t end up getting in over your head.

Financial Planning Tips

  • Before deciding whether to refinance or not, think about the impact that altering your mortgage could have on your budget and financial plan. SmartAsset’s free tool can match you with financial advisors who can help you determine what’s best for you. Get started now.
  • Having a stringent budget in place is a great way to get your long-term financial plan off on the right foot. This might include not only watching your spending on a monthly basis, but also on a weekly basis. From here, you can begin to safely set aside money for your retirement savings and other goals for the future. For help putting together a budget, stop by SmartAsset’s free budget calculator.

Photo credit: © Horrocks, ©, © Rich

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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