Q: What exactly is refinancing?
A: When you refinance, you are taking out a new loan on your home to pay off the mortgage you currently owe. Refinancing usually involves switching from one lender to another, but in some instances, people who are refinancing stay with the same lender and just refinance at a lower interest rate.
Q: Why should I refinance?
A: There are a number of reasons to refinance. One of the most common reasons that people refinance is to obtain a lower interest rate. For example, if you purchased your home when interest rates were at 10 percent and they suddenly dropped to 6 percent, you'd save a substantial amount of money by refinancing your home.
Q: When should I refinance?
A: You would normally want to refinance when interest rates are down. In the past, many experts said to wait till interest rates drop by 1 percent before you refinance. However, refinancing for one-half of a percentage point could also make sense depending on the terms of your loan. For instance, if you have a $200,000 mortgage and you're paying 7 percent for 30 years, at the end of your loan term you'll have paid a total of $479,016. At an interest rate of 6.5 percent, you'd pay approximately 455,040. That's a savings of more than $20,000. If you've only been in your home for a couple of years and you plan on staying there for quite some time, refinancing at the lower rate, even though it's only half a percentage point, would definitely make sense. Whenever you refinance, just make sure that the cost of refinancing is less than the money you'll be saving by refinancing. Your mortgage broker can help you determine your savings potential and will be able to show you your break even point (how long you will need to stay in your home to realize the savings from your refinance).
Q: Can I refinance if I have credit problems?
A: Whether or not you can refinance with credit problems will depend on exactly what your credit history looks like. If your credit is the same as when you purchased your home, you shouldn't have a problem refinancing. However, if you've recently missed some of your mortgage payments or have accumulated a number of unpaid bills since purchasing your home, you may run into problems getting a lender to approve you for a refinance. Your mortgage broker can help you determine if your credit is going to cause a problem.
Q: How much will it cost me to refinance my mortgage?
A: Exactly how much it will cost you to refinance your mortgage will depend on which lender you refinance your mortgage with and how much your mortgage balance is. Your mortgage broker will be able to discuss all associated fees and costs with you.
Q: Can I get cash back when I refinance my mortgage?
A: Depending on how much equity you have in your home, you may qualify for a cash-back refinance. Your mortgage broker can help determine whether this is a viable option for you.