There could be many advantages of refinancing a mortgage, like lower monthly payments and getting a longer time to repay the loan. If you are having difficulty in making your mortgage payments, you should seriously consider refinancing the mortgage to get better terms. Even if you can afford your current mortgage, you can reduce the costs of your home loan through refinancing.
How to Go About It
When you decide to get your loan refinanced, the first person you should approach is your existing lender. The lender might be willing to refinance your mortgage at competitive terms and you may not need to look further. If you have made timely payments and have a good relationship with the lender, the whole process should go smoothly.
The existing lender might actually give you better deals than other lenders to retain your business. This would of course not be true with all lenders. It is better to get estimates from at least 3-4 other lenders before you make up your mind.
When you are selecting a lender to refinance your mortgage, you should first compare the interest rates, closing costs and other terms and conditions. Some lenders might waive your closing costs, which will lower your refinancing expense.
After you have selected a lender, you can apply for refinancing the mortgage. Processing of your refinance application may take a few weeks. The process is not much different from applying for a fresh mortgage.
When Not to Go for Refinancing
There will be many expenses that you will have to incur when you go for refinancing. You might have to pay a mortgage broker, visit different lenders, pay a prepayment penalty to the existing lender, and finally pay the new lender closing costs, appraisal costs etc. If you want to recover the money that you would spend on getting the loan refinanced, then you need to be able to take advantage of the refinanced loan for at least a few years. If you are planning to sell your house in the near future, then refinance could end up costing more than what you would save from it.
Another scenario where refinancing is not such a good option is when you expect interest rates to fall further. It will be a good idea to wait and once you are comfortable with the rates, you can refinance to lock-in your monthly payments.
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