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How to know when it’s time to refinance

If you’ve owned your home for a while you may have already thought about refinancing your mortgage.

Refinancing your mortgage in simple terms is when you get a new loan for your existing home, and pay off your first loan. Your new loan replaces the original loan.

Refinancing might help you get a better rate, lower your payments, set up different terms, or it could help you pay off your loan faster, or even pay off other debts.

If your financial situation has changed since your first home loan, then it’s a good time to consider refinancing.

Maybe your family earns more than when you first bought your home, or maybe you’re making less now and you want to take advantage of the equity you’ve built over the years.

Many homeowners consider mortgage refinancing as a great option for some of the reasons shared here:

  • Lower my interest rate
  • Reduce my monthly mortgage payment
  • Shorten the term of my home loan, for a faster payoff
  • Change or update the terms of my adjustable-rate mortgage
  • Change from an adjustable-rate mortgage to a fixed-rate mortgage
  • Switch to an interest-only loan to reduce my monthly payment
  • Access the equity in my home by refinancing so I can take cash out

Refinancing can help you set up a new loan structure that better fits your current financial situation as well as any new goals you may have.

Our Preferred Rate Loan Advisors can help compare current rates against your existing loan, and see if it’s a good time to apply and get started on refinancing.

Step 1: Set Your Financial Goals

Refinancing your mortgage will most likely change your financial situation in the short-term and the long-term.

Even if mortgage rates are dropping, it doesn’t always mean that refinancing is the fastest way to financial freedom.

Setting some financial goals ahead of time will help get the most out of your loan refinancing process. You might want to lower your mortgage payment or reduce the term of your loan.

Maybe you’re ready for a higher mortgage payment so you can pay off your mortgage faster, and pay less interest over the long-term.

Perhaps you want to take advantage of the equity in your home and get some cash out so you can invest it somewhere else, or pay off other debts.

So before you get too deep into all the refinancing options, spend a little time looking at your financial goals, and think about why it makes sense to refinance your mortgage.

For example:

  • Do I want more cash flow each month for my family
  • Do I want a lower monthly payment so I can save for my kid’s college fund
  • Do I want to pay down the loan and payoff my mortgage sooner
  • Do I want to cash out and invest my money elsewhere
  • Do I want to switch my adjustable-rate loan to a fixed-rate mortgage

Understanding the big picture of what you want will help you navigate the process when it comes to refinancing your mortgage.

What’s Next —> Now that you have some goals in place, it’s time to connect with a loan advisor who can guide you through the process.

Step 2: Connect with a Loan Expert

Refinancing might feel simple at first — just call your broker and find out if the rates are lower than they used to be.

Turns out refinancing your mortgage can be a complicated process once you start looking into all the options. The good news is that the financial benefits will be worth the work, and it could impact your financial future for years to come.

A great loan advisor will:

  • take time to understand the big picture for you and your family
  • be your guide through the entire process
  • get you pre-approved and lock-in your rate
  • handle the underwriting and make sure all your docs are in order
  • explain fees and commissions (if any) along the way
  • finalize the details & terms of your new home mortgage loan
  • clearly explain the terms of your new mortgage loan
  • guide you through the closing process
  • celebrate with you when your new home loan closes!

Preferred Rate has dozens of specialty loan programs and unique options available, and our loan advisors are true experts when it comes to putting together the perfect mortgage.

We will put together a customized mortgage loan that makes the whole process easy and stress free. A mortgage loan that meets your financial needs right now and sets you up for financial freedom later.

What’s Next —> Now it’s time to gather your documents: bank statements, pay stubs, tax returns, and some other basic info to verify income, assets, and liabilities.

Step 3: Mortgage Refresher

Now that your loan advisor has your information and understands your financial goals, they will be looking into the best options for refinancing your mortgage.

This is a great time to do a little homework and refresh yourself on the different types of mortgage loans. Your original loan might have been a great fit when you bought your first home, but your life might look very different now.

  • A 30-year fixed-rate mortgage offers you a fixed rate for the life of the loan, a fixed monthly payment and long-term stability.
  • A 15-year fixed-rate mortgage offers you a fixed rate, fixed monthly payment and long-term stability. Monthly payments are usually a little higher and you’ll payoff your mortgage faster.
  • An Adjustable rate mortgage (ARM) typically offers a lower rate in the beginning, a lower monthly payment, and flexible terms. After a defined term (usually 2-5 years), the monthly payment and rate may change.
  • An Interest-only mortgage is designed as a shorter-term loan after you’ve built some equity in your home. By paying just the interest on your loan each month (and no principal), you’ll typically have a lower monthly payment and a low rate.
  • A Jumbo loan is available for homeowners who want to borrow against a high-value home that exceeds conforming loan limits. These loans can be structured as a fixed-rate mortgage or adjustable-rate mortgage. There are also other options and specialty loan products available exclusively to homeowners of high-value homes.
  • A USDA loan is another refinancing option for rural property, farmland, creative land use and residential properties that are in rural areas.
  • A Reverse mortgage loan is a unique refinancing option for homeowners who are at least 62 years of age, and have equity in their home. Homeowners have the option to defer mortgage payments, or receive a payment each month to use however they wish.

Preferred Rate also offers dozens of specialty loan options and government-backed mortgage loans which can be combined with one of the popular mortgage loan types listed above to create a truly customized mortgage loan for you.

Based on your financial goals, how much equity you have in your home, and what type of loans you qualify for, refinancing your mortgage can be a great step toward financial freedom.

What’s Next —> Now that you’ve done your homework, make sure to connect with your loan advisor and lock in your rate.

Step 4: Lock in your Preferred Rate

After submitting all your documentation to your loan advisor, you want to lock in your rate.

The economy and the housing market might shift rapidly. Having a secure rate locked in means that even if rates go up, your new rate is secure. It also means that if rates go down, your “locked in rate” can float down with the market.

Preferred Rate offers a Secure Lock service precisely for this purpose.

We want to make the entire process stress free and easy for you to navigate.

Once your rate is locked in and your loan advisor has all the necessary documents, it’s time to breathe a little.

Your loan advisor will put together a few loan options for you to review, while you take a break from the process and get back to normal life.

You might want to reflect on your financial goals, and review some of the options different loan packages offer when it comes to refinancing. This will help when you’re ready to sign-off on you new loan.

What’s Next —> Get ready to review your new loan options! While you’ve been doing some homework, your loan advisor has been working on the final details.

Step 5: Get your new loan approved

This is the easy part! Your loan advisor will let you know which mortgage loans offer the best options based on your goals & qualifying information.

You might be asked to verify documentation, or there may be some additional information required to finalize your loan process.

Once the loan is approved, you can review all the details of the new loan with your Loan Advisor. You’ll be able to ask questions and confirm any changes that came along the way to refinance your home loan.

What’s Next —> Get ready to sign your new docs & close on your new loan!

Step 6: Celebrate!

Congratulations! Once your new home loan is ready, you’ll meet up to sign final documents and review the terms again. This is a great opportunity to ask any questions you may still have about your new mortgage loan.

Now it’s time to relax and celebrate!

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