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How Does Refinancing A Mortgage Work?

December 7, 2020

a home and money thinking about family finding out Refinancing A MortgageGetting a mortgage to buy a home is a long-term commitment, and it is not unusual for borrowers’ financial situations to evolve in the years after taking out the original loan. In some cases, the original mortgage can be refinanced to meet the homeowner’s current needs and abilities. So, exactly how does refinancing a mortgage work?

A mortgage refinancing loan entails taking out a new loan with different terms and paying off the original loan. Homeowners might choose to refinance their mortgage at some point to take advantage of more favorable market interest rates, reduce their monthly payments with a longer term of repayment, or cash out part of their equity.

Although the homeowner already owns the home when they refinance it, the refinancing process is similar to that of the original loan in many ways. First, homeowners will compare the rates and terms available across lenders to find an appealing offer and then see how it compares to their existing loan. There is a good chance that homeowners might quality for better terms if their credit has improved since they took out the original loan.

How To Qualify For A Mortgage Refinancing Loan

To qualify for refinancing a mortgage, homeowners need to meet similar criteria to those of a new mortgage loan.

Lenders will take a close look at the applicant’s credit history and score, employment and income history and other debt obligations. They will also consider their payment history on the existing home loan and the amount of equity that has been built up so far, along with the current value of the home.

Applicants who meet these criteria will be given an offer that reflects the risk they pose to the lender. Those with flawless credit, plenty of equity and good income may find it easier to get better terms. In contrast, those who have more debt or a lower credit score than they did when they got their first mortgage might find it difficult to get more favorable terms.

Will Refinancing Affect My Credit?

family of four moving into new home after knowing how does refinancing a mortgage workThere are several ways in which a refinanced mortgage could impact credit. First, applying for the mortgage will place a hard inquiry on a homeowner’s credit report, which could drop their credit score by a few points. Although multiple inquiries across a short period of time (typically up to 45 days) generally only count as one on a credit report, those who shop for better rates across a period of several months may see their score drop noticeably.

In addition, closing the previous mortgage loan and replacing it with a new one could affect the homeowner’s length of credit history. It is important to remain attentive, as missing a payment on the old loan during the refinancing process could also lower a person’s credit score.

Borrowers who already enjoy good credit are unlikely to notice a big effect on their credit history from refinancing, but those who are already on shaky ground could see the odds tipped against them if they are not careful.

Why Should I Refinance My Mortgage?

The question of whether to refinance is a complex one, and there are many factors to take into account when deciding if it is the right move. Here is a look at some of the top reasons homeowners might opt to refinance their mortgages.

Lower Interest Rate & Monthly Payment

One big reason many people seek a mortgage refinance is a reduction in the overall market rates. Mortgage interest rates are constantly fluctuating, and refinancing is very popular when these rates dip. Those who have seen a big improvement in their credit since taking out the original loan can also benefit from refinancing. In both cases, homeowners might be able to save on interest with a lower monthly payment and reduced rate.

Ability To Cash Out

Homeowners who have built up significant equity in their home might opt to cash out part of that equity via refinancing to cover bills, buy out a former spouse in a divorce or pay for a major purchase.

Change Loan Rate Type

Homeowners whose original mortgage carried an adjustable rate may later seek to switch to one with a fixed rate to offer protection against market fluctuations. Conversely, borrowers with fixed-rate mortgages who anticipate a prolonged drop in interest rates might wish to switch to an adjustable-rate mortgage. This can also be a sensible move for those who plan to move within a few years.

Adjust Loan Term

broker handing over keys after knowing how does refinancing a mortgage workSome homeowners find that they can qualify for a better interest rate by shortening their loan term. For example, moving from a 30-year mortgage to one lasting 20 or 15 years could result in a lower rate. This allows them to save money on interest throughout the loan’s lifetime and is a popular choice for borrowers who have seen a significant increase in income. Meanwhile, extending the loan term can help to lower monthly payments.

Reach Out To A Professional For More Questions About How Does Refinancing A Mortgage Work

The mortgage terms you agreed to a few years ago might not be the right terms for you today. There are lots of factors to consider in a refinance, and it is important to ensure the benefits outweigh the risks before proceeding. Reach out to the professional mortgage brokerage at My Lending Pal for expert guidance on the best path to take in your situation and to learn more info on how does refinancing a mortgage work.

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MyLendingPal, Inc, NMLS ID #1734346, (www.nmlsconsumeraccess.org); Corporate Office: 5400 Laurel Springs Parkway, Suite 304, Suwanee, GA 30024. Georgia Residential Mortgage Licensee #61544. Principal Loan Originator: Ricky Merchant, NMLS ID: 1517056. Georgia License # 54264. For questions regarding state licensing, please contact (404) 433-8918. Not all products and options are available in all states. Terms are subject to change without notice. Any rates or terms are speculative only and can change without notice.
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MyLendingPal, Inc
MyLendingPal, Inc
5.0
Balachandar Sundaresan
Balachandar Sundaresan
17:30 23 Jun 20
Roger Merchant and his team were very helpful, right from getting a great rate to completing all process on time and being super responsive. Would happily recommend him!!
Dinesh Nair
Dinesh Nair
14:41 30 Jan 20
I would definitely recommend MyLending Pal for all mortgage needs. It all started with a great competitive quote on refinance and excellent service continuing all the way until closing. Priti, Ricky and Roger were a pleasure to work with.
Ramesh Kumar
Ramesh Kumar
02:03 17 Dec 19
I would really recommend Nations First Home Mortgage, if you are looking for the best home mortgage options. I was very much glad to work with this team and they have saved lot of time and money!!
gulshan rai
gulshan rai
03:21 17 Apr 19
I would highly recommend Mr Roger to anyone in the area looking for an amazing lender. He made the mortgage process so easy and effortless. I could tell him and his team were very attentive to all the details that came with applying for a mortgage and were quick to remind me of any deadlines that were approaching.It was super easy to work with Mr Roger.My special thanks to preeti who did an amazing job to get things done in the timely manner. If I had any questions, it was almost like she was waiting at her desk for my phone call to answer the questions immediately. The loans closed on time and without a glitch. I would highly recommend them to anyone
Ajith Nair
Ajith Nair
01:50 13 May 19
We highly recommend Roger for financing mortgage. Roger and his team were excellent through out the process and we had a very smooth purchase. They were always available when we had any questions. It was an amazing experience working with Roger and his team.
Pratul Patwari
Pratul Patwari
13:03 20 Jul 20
Roger Merchant and Priti Vin helped us in buying our first home. They understood our needs and took care of everything for us. They were very good with the communication through the process. They will always be my first choice in future for the mortgage services.
Sujatha Hariharan
Sujatha Hariharan
20:51 26 Jul 20
They were able to find me great rates. Service was quick and communication prompt. The loan process can be daunting as is the document gathering process but this was the easiest and quickest that I have experienced. Highly recommend!
Dinesh Nair
Dinesh Nair
15:53 30 Jul 20
I would definitely recommend MyLending Pal for all mortgage needs. It all started with a great competitive quote on refinance and excellent service continuing all the way until closing. Priti, Ricky and Roger were a pleasure to work with.
Manu Pushpanath
Manu Pushpanath
15:59 29 Jul 20
Great lender to work with. Right from document collection till closing they did it in 2weeks. The fastest closing I heard and get to experience myself. One improvement I suggest is it will be good if the closing attorney can come into the house for completing the closing. Considering current situation it will add a lot of value to the reputation. Thanks Milan and team for a good closing experience.
Sakthi S
Sakthi S
20:46 01 Sep 20
Would definitely recommend Roger and his team.Refinanced for the second time and with roger, I didn’t feel like I refinanced.The process was very smooth and fast.The rates were very competitive and it was amazingworking with Roger and his team.I’d recommend him for sure.
Sunny Patel
Sunny Patel
21:17 01 Sep 20
They were quick, courteous, and professional. They got me an excellent rate and helped make the process smooth. I would recommend using to my friends and family!
Emmitt Rathore
Emmitt Rathore
14:57 22 Dec 20
Roger helped us find an unbeatable rate!His decades of work in the industry made it easy for us to complete many processes with the lender, and helped us close on time!I will definitely be passing the good word around and recommending family and friends to him.I look forward to our next real estate transaction with them.
M Alamoti
M Alamoti
01:02 11 Jan 21
I had the experience of using their service. They know what they are doing. They are very honest, professional and caring. I have no doubt and hesitation to recommend them to anyone who is looking to purchase a home. I am very pleased for their service.
kondal rao
kondal rao
05:36 09 Apr 21
Roger and Team were very helpful. Proactive and honest service. My closing ended in no time. I made the right choice of choosing this team. Worth trying with this Team
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