The Price You Pay: Refinancing
Thinking of taking advantage of interest rates or just perusing options to save you money? Whichever one, we’re glad you’ve decided to take the next step into replacing your existing loan with a newer loan that has better terms to improve your financial situation.
Specific advantages of refinancing
Refinancing lowers your interest rate
Refinancing changes your loan term
Refinancing offers the option of changing your loan type
Refinancing lowers your monthly mortgage payment
Now that the perks of refinancing are out of the way, we have some other logistics we need to discuss.
How much will this cost me?
We have to take the good with the bad to ensure a better financial situation in the long-run, right? Well, this is the nitty gritty part of refinancing that no one really talks about. There are some costs that come with refinancing. Transaction costs vary from state to state, but to be on the safe side you should budget 3-6 percent of the outstanding principal on the current loan in place. When it comes to other fees like appraisal fees, credit fees, lender fees or discount points, it’s good to brush up on your education of them but know they also vary. We’ve provided you with more insight on this here.
What’s the refinance process like?
Imagine your homebuying process, then remove a real estate agent and a down payment, and you’ll pretty much have your refinance process. Between the two, refinance is probably the easiest because you don’t have to find a home or involve as many people as you did with the home buying process.
"Our refinance with Atlantic Bay was a positive experience! Our mortgage banker was on top of everything, had excellent communication and made for a very smooth process. Thank you!"
If you’re looking for a lower monthly mortgage payment, refinancing could help you do that. Even once you have a home loan, the mortgage industry and loan process can still be confusing, especially if you’re looking to refinance your loan. Talk through any questions or concerns you have with your mortgage lender. They can help you decide what’s right for your financial situation, we’re here to help.
Frequently Asked Questions
Chances are, if you're wondering about it, someone else has too. Here are answers to some of the questions we hear most often.
Refinancing replaces your existing mortgage with a new loan that can offer better terms for your situation. Depending on your goals, refinancing can lower your interest rate, change your loan term, switch your loan type, or lower your monthly mortgage payment. The right benefit to prioritize depends on whether you're focused on saving money each month, paying off your home faster, or adjusting your loan structure to better fit your finances. Learn more about the specific advantages of refinancing.
Refinancing typically comes with transaction costs that can range from about 2% to 6% of your outstanding loan balance, though the exact amount varies by state and lender. These costs can include appraisal fees, credit fees, lender fees, and discount points, each of which can vary based on your loan and location. Because these costs affect how quickly refinancing pays for itself, it's worth reviewing them closely with your Mortgage Banker before moving forward. See how to budget for these costs before you refinance.
Common refinance fees include appraisal fees to confirm your home's current value, credit fees to pull your updated credit report, lender fees to process the new loan, and discount points if you choose to pay upfront to lower your interest rate. Not every fee applies to every refinance, and the amounts can vary by lender and location. A Mortgage Banker can walk you through an itemized breakdown of the fees specific to your refinance. Explore a full breakdown of common closing cost types.
Refinancing is generally simpler than the homebuying process, since you're not searching for a property, working with a real estate agent, or coming up with a down payment. You'reessentially replacing your existing loan with a new one, so the process focuses on underwriting, appraisal, and closing rather than house hunting and negotiations. Many borrowers find refinancing more straightforward than their original home purchase for this reason. Walk through the steps involved in refinancing your home.
Whether refinancing is “worth it” depends on how the upfront costs compare to your long-term savings, such as a lower monthly payment or reduced total interest over the life of the loan. A common way to evaluate this is to calculate your breakeven point, or how long it takes for your monthly savings to cover the closing costs. A Mortgage Banker can help you run these numbers for your specific loan and goals. Learn more about calculating your breakeven point.
The right decision depends on your goals, whether that's a lower monthly payment, a shorter loan term, or switching to a different loan type, and how the closing costs compare to your expected savings. Current interest rates, how long you plan to stay in your home, and your current loan terms all factor into whether refinancing makes sense right now. Talking through your specific situation with a Mortgage Banker is the best way to get a clear answer. See our guide on whether or not now is the right time to refinance.