Refinancing your mortgage means that you take out another mortgage and use the funds to pay your existing mortgage loan. The new mortgage replaces the old one. You then get another loan term to repay the new mortgage.
There are different reasons for refinancing your mortgage. Some people might refinance when they are going through financial problems. Others refinance to pay their existing loans faster or benefit from low-interest rates.
Whatever the reason, some people refinance while others do not because they do not know about some of the common facts and myths about refinancing.
Let us explore some facts and myths that you need to know before refinancing.
Time To Refinance
The process you go through when refinancing is similar to the same process you went through when you were applying for your first mortgage. You will have to fill and submit your application with all documentation, wait for processing, and get your loan.
The time the entire process takes will depend on your lending institution as well as the demand in the market. For example, dealing with hundreds of applications at the same time means that it will take longer for a lender to process your loan.
You Can Use a Refinance Calculator to See the True Picture
Before refinancing your mortgage, you need to make sure that you understand what you are getting yourself into. Most people depend on lenders and other professionals who might not be so transparent when discussing mortgage refinancing.
Fortunately, you do not have to fall for brokers and these people when you can use a refinance calculator to see the true picture of your loan. You will be able to see things like interest rates, loan terms, and even the best options that meet your requirements.
Changing of Your Loan Term
As discussed in the introduction above, your old mortgage loan is replaced by a new one when you refinance. This means that your loan term is going to change as well. However, the term might get longer or shorter depending on the option that you choose.
For instance, let us assume that you have 25 years on your old loan. You then refinance with a thirty-year mortgage. Your new loan term will be increased to thirty years. On the other hand, if you refinance with a twenty-year mortgage, your new loan term will be twenty years.
You Can Refinance Only After a Year
Some people assume that after refinancing, they have to wait for more than one year for them to refinance again. However, this is not true. You can refinance as many times as possible as long as it is six months since the last refinancing and you are dealing with a legit lending company.
That notwithstanding, you should be very careful before taking this route. This is because every time you refinance, you will have to take care of closing costs. This means you might end up spending a lot of money on refinancing, something you should avoid.
Closing Costs Cannot Be Negotiated
One of the disadvantages of refinancing is the fact that you have to pay closing costs for you to get the loan. However, some people assume that even though they are good negotiators, they cannot negotiate these closing costs.
However, costs such as loan application and origination fees are set by your lender and can be negotiated. Before settling on a lender, make sure to do research on different lenders and only choose the one that meets your requirements especially when it comes to these fees.
Refinancing Resets Your Clock
Some people assume that refinancing will rest their clock and that they have to start again afresh. Imagine a situation where you are refinancing ten years after taking your first thirty-year mortgage. This would mean you start again with a thirty-year loan.
Well, as discussed above, this is not always true. It all depends on the loan you are taking. In the example above, you have twenty years left on your loan. If you refinance with a fifteen-year loan, then your clock will be getting shorter.
Mortgage rates change from time to time. For instance, 2021 saw some of the lowest interest rates in history compared to previous years. If you were keen, you might have realized that a higher number of people were getting mortgages compared to this year when the rates have gone higher.
Whatever the case, understanding these facts and myths is going to help you make the right choice when refinancing your mortgage.