For the average person, a home mortgage represents the single largest form of debt you’re likely to take on. So it makes sense that you should think hard about the loan product you’re currently using and whether you might have an opportunity to refinance on more comfortable terms.
The Case for Refinancing
In the most basic sense, refinancing a mortgage means you pay off an existing loan with another loan taken out on separate terms. That’s a rather simple concept in essence, but there are creative and sophisticated ways that refinancing can be used to benefit a homeowner.
People refinance for various reasons, including:
– Better interest rate. If you currently have an interest rate that’s higher than today’s standard, refinancing will give you access to a better rate. This could save you hundreds or even thousands of dollars a year.
– Lower payments. In the short term, refinancing can free up cash flow in your monthly budget by lowering your mortgage payment. For some of us, gaining a few hundred dollars a month can make a big difference in our quality of living.
– Better terms. If you’re currently on an adjustable-rate mortgage (ARM), then you have little control over the lifetime cost of your loan. Refinancing to a fixed-rate mortgage can give you greater predictability.
– Free up cash. Though this is not typically recommended, you can pull cash out during a refinance. People do this sometimes in order to fund a business, pay off a high-interest loan, or cover a necessary medical procedure.
Under the right circumstances, these can all be valid reasons for refinancing, but the strategy often involves potential negatives.
“Since refinancing can cost between 3% and 6% of a loan’s principal and — as with an original mortgage — requires an appraisal, title search, and application fees, it’s important for a homeowner to determine whether refinancing is a wise financial decision,” Investopedia explains.
In particular, it’s wise to think about how you refinance. Homeowners have traditionally worked with bank and credit unions that have a nearby physical location, but there are also advantages to refinancing a mortgage online.
The Benefits of Refinancing Online
The Internet has opened a new array of opportunities for homeowners. It’s now possible to refinance a home loan online, which can be beneficial in multiple ways. Perks include:
– Fast. It’s amazing how much more efficiently you can refinance your mortgage online … or at least to start the process. You may cut out many of the time-consuming aspects that are in play when you work with a brick-and-mortar lender. There’s no driving back and forth, sitting in meetings, or dealing with cumbersome paper trails. The entire process is consolidated and streamlined so you can direct your time and energy elsewhere.
– Easy comparisons. When the process takes place online, it’s much easier to compare interest rates and loan products from competing lenders. Lots of search engines and tools will help you do this. When you find the rate and terms you want, just click a few buttons and begin the process.
– Lower closing costs. Closing costs aren’t often cheap. Though it generally makes sense to refinance over the long haul, the up-front expenses can turn off many prospective borrowers. Although it’s not substantially cheaper, refinancing a mortgage online will typically save you a few hundred dollars, which can make the process more palatable for the average family.
In the future, we can expect the majority of refinances to take place online. It makes more sense for both homeowners and lenders. People who try it today will get a head start.
Reassess Your Finances
Don’t stop with refinancing your home mortgage. You can employ your heightened state of financial awareness and experience to address other facets of your fiscal health.
As you go through the process, you’ll discover you may not be doing everything you can to leverage your money in the savviest ways that serve your best interests. Start with your budget.
Get a grasp on your income and expenses, where you could be bleeding money, and the places you can tighten up. Once you have these savings in hand, focus on investing and putting those extra dollars to work.
Smart decisions made today will yield compounding returns in the years to come. Refinancing is just the start!
