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How to Refinance Your Mortgage

 After setting your refinance goal and researching your home's value, compare refinance rates and fees from multiple lenders.

 
 

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You made it through one of the toughest challenges: buying a home. Now, perhaps just a few years later, you’re ready to refinance your mortgage. How hard can it be? You may be surprised to find that it’s not a couple-of-emails-and-a-phone-call-or-two process. In fact, there may be more paperwork involved this time around than when you first bought your home.

Let’s consider some important initial steps of a mortgage refinance — and then run through the rest of the process step by step.

Why you might want to refinance

Before you begin, it’s important to consider why you want to refinance your home loan in the first place. That guides the mortgage refinance process from the very beginning.

» MORE: Notify me when I can save by refinancing.

Lowering your payment is usually the goal. And it’s tempting to refinance with another full 30-year term to really knock down that monthly payment. But that means you’ll end up taking even longer to pay off your house and paying more interest.

You’ll want to take into account how much interest you’ve already paid on your old loan and how much you’ll pay with the refinance. Loans are front-loaded with interest, so the longer you’ve been paying, the more each payment is going toward paying off the principal balance — and the more interest you’ve already paid. Comparing what you’ve paid in interest so far and what you will pay on your current loan versus the refi will give you a solid idea of your total loan costs for either option.

By resisting the urge to extend your loan term, you can instead refinance to reduce the term and to get a lower interest rate, which could significantly reduce the amount of interest you pay over the life of the loan.

Choosing a suitable loan term for your mortgage refinance is a balancing act between an affordable monthly payment and reducing your borrowing costs.

Use a mortgage refinance calculator

Once you know you have a good reason and you’ve determined it’s the right time to refinance, it’s time to work the numbers. Using a mortgage refinance calculator can help you shop for the best mortgage.

You’ll need to know (or make some educated guesses about) your new interest rate and your new loan amount.

After you input the data, the tool will calculate your monthly savings, new payment, and lifetime savings, taking into account the estimated costs of your refinance.

Working with a refinance calculator will give you a good idea of what to expect. Even better, when you have a few estimates from mortgage lenders you can enter the terms they offer you into the calculator to help determine which one offers the best deal.

It’s also key to shop the best refinance rates

Now it’s time for a little legwork — or more likely web work and phone calls. You want to shop for your best mortgage refinance rate and get a loan estimate from each lender. Each potential lender is required to issue the estimate within three days of receiving your basic information.

The estimate is a pretty simple three-page document that details the loan terms, projected payments, estimated closing costs and other fees.

Compare the loan details from each lender and decide which one is best for you. This is a good time to really work that mortgage refinance calculator.

 

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