FAQ about Refinancing A Mortgage

Mortgage and Lending with Horizon Lending Services, LLC NMLS # 942863

Mortgage refinancing often brings about a lot of questions. In this article, we'll answer some of the most common. 


What Is Refinancing Your Mortgage?

Mortgages are a very long-term deal. Most borrowers sign up for a 15 or 30 year loan. If you choose a fixed-rate loan, you've locked in an interest rate for the entire length of your mortgage. If you choose an adjustable rate loan, your interest rate will fluctuate throughout the life of your mortgage, based on a pre-selected benchmark. Either option can end up locking you into a poor financial situation.


Let's say that you signed up for a fixed rate mortgage in 2007 when mortgages had an average annual interest rate of 6.54%. That may have sounded like a good deal at the time, since previous years had seen interest rates as high as 8% in 2000, but compared to 2017's average rate of 3.99%, you might feel like you got a raw deal. A similar story goes with adjustable rate mortgages where people have agreed to have their interest rate fluctuate with the times (in addition to a lender margin that may make your interest rate higher than the average fixed rate loan).


In either case, you might choose to refinance in order to score a lower interest payment. Refinancing is when you take your still-open-loan to another lender. Let's say you are 15 years into a 30-year mortgage, or even 5 years into a 30-year mortgage. You can take your mortgage to an interested lender, or a few, and they'll compete for your business. If you choose to refinance with Lender XYZ, they'll pay off your current mortgage and then open a new one in your name.


What Are The Advantages Of Refinancing?

Refinancing can be handled in many different ways depending on your financial situation and your reasons for refinancing. Maybe you want to refinance because you personally got a higher interest rate than average due to poor credit history at the time your mortgage was opened. Now that you have repaired your credit, you'll probably be able to score better terms when you refinance.


Likewise, you may have added a lot of equity to your home and perhaps you have better income now. Your goals of refinancing may be to lower your interest rate, lower your monthly payment, shorten or lengthen the mortgage term, or something other. Refinancing can help you improve your home's affordability while keeping you on the right track to sustainable home ownership.


How Much Does Refinancing Cost?

When you originally opened your mortgage, you had to pay certain "funding fees" at closing. A similar process will take place when you refinance your home. The exact cost will depend on your lender and the mortgage terms, but in general, expect to pay about 1% of the loan's total cost.


So, if you are refinancing your $200k home that you have paid $40k towards through the years, you'll be financing $160k and you'll be required to pay 1% on that amount (or $1,600). There may be some other fees involved in the process as well, so ask your lender.


Do I Need Good Credit To Refinance My Mortgage?

This really depends on your situation. Some programs are aimed at homeowners who have just been met with a tough financial situation. Refinancing can help make your home more affordable and enable you to continue living in your home.


In general, better credit will help you get a better interest rate and lower monthly payments while also giving you more options on the table. The question here really becomes: will refinancing help you at this time? With good to excellent credit, refinancing can help make your loan more affordable. If you have bad credit, consider your options and look into some programs aimed at helping homeowners retain their home during hard financial situations.


Do I Need To Use The Same Lender?

No, in fact, shopping around may score you an even better deal than your current lender will offer you. Going to a mortgage broker can help you see many different offers for refinancing your mortgage. You can also contact a few lenders, like our team of experts at Horizon Lending Services, directly and discuss your situation.

Do you have more questions about refinancing a mortgage? Our mortgage experts at Horizon Lending Services are ready to help answer any other things lingering in your mind.


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Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Excellent information for people that want to refi and not sure about it.  Good Job!

Jun 25, 2018 06:08 AM #1
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Sharon Mistowski

Horizon Lending Services, LLC
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