Tips To Refinance Your Home

There are several reasons to consider refinancing the mortgage on your home. Refinancing can potentially reduce your mortgage payment, lower your interest rate, or shorten your loan’s term. Additionally, through an option called a cash-out refinance, you can turn home equity into cash to use on whatever you like. Many people turn to these refinances to consolidate higher interest debt (like credit card debt) with their mortgage or to pay for big-ticket items, like home improvements.

With all that in mind, the idea of refinancing your home loan may still seem daunting at first. But the process boils down to replacing your current mortgage with a new mortgage, and a good lender will make the process as easy as possible. With some preparation and research, you can go into the process feeling confident. Here are a few of our top tips to refinance your home.

1. Know your goals

Before you apply to refinance, make sure that you know exactly what you’ll want out of it. Start by getting a clear picture of your current financial situation and monthly budget. Then, consider a few questions to determine your top priorities:

• Do you want to refinance your mortgage* to lower your interest rate or to get cash out?**
• Is your main goal to lower your mortgage payments?
• How much cash out would you need from a cash-out refinance?
• How much debt do you want to consolidate, if any?***
• Do you want to get rid of mortgage insurance when you refinance (if it applies to your loan)?

When you have answers to the questions above, you’ll be better prepared to talk to a lender about loan amounts and interest rates. In a best case scenario, it may be possible to reach all of your goals with one refinance. Contact a Mr. Cooper mortgage expert to explore all of your options.

2. Consider your interest rate options

Before you talk to a lender, it’s also a good idea to educate yourself about your potential interest rate options. Mortgages have two options in this arena. They can be fixed-rate mortgages or adjustable-rate mortgages (ARM).

A fixed-rate loan will keep your interest rate the same for the term of the loan, while an ARM’s rate can change, typically with trending interest rates. The benefit of an ARM is that you can usually get a lower interest rate than a fixed-rate loan, temporarily. But that rate can rise over time. This makes an ARM less ideal if you plan on holding onto your loan for the long term.

A second factor you’ll want to consider is whether you’re willing to pay for discount points to lower your interest rate more. Discount points typically cost 1% of a loan’s amount to reduce an interest rate by 0.25%.

Next, weigh your options regarding the term of the loan. Do the math with different scenarios to determine the best fit for your financial situation and goals. Mortgage calculators can help you make comparisons.

3. Streamline your finances

Before taking any sort of financial action, it’s a good idea to streamline your budget and take a close look at your finances. Your income, savings, credit score, and debt will play an important role in refinancing a mortgage. With a lower credit score, you might not be able to obtain the lowest possible interest loan. If you are carrying too much debt, you might not be able to qualify. (But don’t count yourself out until you talk to a lender.)

Finally, you will also need to pay any back taxes on the property and clear any tax liens.

4. Prepare your paperwork

As with your original mortgage, your lender will need documentation from you to process your loan refinance application. To streamline the process, gather all of your documents beforehand and check with your lender for a complete list of what’s required. Among other things, you’ll likely need your tax returns from the last 2 years, W2s, any 1099’s (if you’re self-employed), pay stubs, and bank statements. If you’re retired or receive Social Security income, you’ll also want proof of that income.

5. Prepare your home for the appraisal

Depending on your loan type and lender, your home may be appraised as part of the refinancing process. (Some loan types don’t require an appraisal, such as an FHA streamline refinance.) This may involve an appraiser driving by your house or coming in. Either way, put your home’s best foot forward. Also, keep in mind that with a cash-out refinance, the amount of money available to you through the loan will depend, in part, on the appraised value of your home.

There are a few ways to prepare your home for an appraisal to make sure that you maximize value: Double-check that your home is in its best condition, and make sure that all safety measures such as smoke detectors are in working order. Preparation for an appraisal is similar to staging your home for sale, so make sure everything is in working condition and that nothing is obviously broken or in need of repair to help improve your results.

Ready to get started on a refinance? Your options are just a call or click away. Contact our mortgage experts at 833-702-2511 or apply online.

Disclaimers

* By refinancing your existing mortgage, your total finance charges may be higher over the life of the loan.

** A cash-out refinance increases your mortgage debt and reduces equity. It may increase the total number and amount of monthly payments, total finance charges, and/or the total amount paid on the mortgage.

*** Debt consolidation refinances increase mortgage debt, reduce equity, and extend the term on shorter-term debt and secure it with your property. The relative benefits received from debt consolidation will vary. A debt consolidation loan may increase the total number and amount of monthly payments and the total amount paid over the term of the loan. To enjoy the benefits of a debt consolidation loan, borrowers should not carry new credit card or high interest rate debt.