Have you ever kicked yourself for your mortgage after seeing current rates, or wished you had known about another loan term? You’re not alone! The number one reason Minnesota homeowners look into mortgage refinancing services is to take advantage of lower interest rates and pay off their mortgage faster, but no matter the reason, know that you have that option.
What Is Mortgage Refinancing?
When you refinance your mortgage, you are, essentially, paying off the original loan with a second loan so that your monthly payments now go towards the second loan. Obviously, you probably don’t want to be signing on to a loan that will cost you more in the end, so it’s important to thoroughly discuss your options with a broker you trust.
How Does Refinancing Your Mortgage Work?
To refinance your mortgage, you have to take out a new mortgage. You’ll apply for a new home loan, but instead of the new home loan going toward the purchase of the home, it’s used to pay off your existing mortgage. It can be beneficial if you find a refinancing offer that will lower your interest rate or provide better loan terms because it erases any current mortgage debt. Sounds pretty good, right? You then continue to make mortgage payments as you have been, but now it’s on the new loan.
You do need to apply for a new loan like you did with your original mortgage, providing the lender with the necessary information. If you already know a refinance is right for you or you’d like to discuss your options with BAM, you can start the paperwork now!
What Is a Cash-Out Refinance?
One type of refinancing option is a cash-out refinance. Since with refinancing, your interest rate goes down and your home is appreciating, you can tap into the equity you’ve built. The difference between your new loan amount and your original loan balance is what you’d receive in cash if you do a cash-out refinance. This money could go towards consolidating debt or home improvements, to give you a couple ideas. Though what you use this cash for is up to you.
In order to go with a cash-out refinance, you’ll need to have enough equity in your home to meet requirements from your lender. This is usually about an 80% loan-to-value ratio. Like normal refinancing, other factors like credit score, income, job security and more can be taken into consideration if you don’t meet the 80% requirement.
How Much Does it Cost to Refinance in Minnesota?
Of course, refinancing costs depend on a few factors specific to your situation, like who your lender is, the interest rate, APR and if you’re paying any upfront costs.
The closing costs are also dependent on certain factors. Refinancing costs will vary based on the value of your home and where you live, to name a few. Average closing costs, according to the Federal Reserve, are usually around 3-6% of your mortgage’s principal.
Don’t give yourself a headache trying to figure out what this means for your mortgage refinance. When you use our Minnesota mortgage refinancing services, we’ll walk you through all of this.
How to Know If Mortgage Refinancing Is for You
Refinancing your mortgage can seem really attractive if you’re looking to lower your interest rates, shorten the terms of your loan and lower monthly payments, but there are factors you should consider before doing so. Don’t worry, the BAM team can help you decide if it’s the right solution for you! Historically, a good rule of thumb has been that refinancing is right for you if you can reduce your interest rate by at least 2%. However, some lenders will tell you 1% is enough to consider refinancing. Things to consider before refinancing include:
How much will refinancing save me in interest rate payments?
How much money will refinancing save me in my new mortgage payments?
How long do I plan on living in my current home?