Important Details To Consider When You Refinance Your Mortgage

Posted on: 9 March 2021

Home mortgage interest rates are at an all-time low, which provides you the perfect opportunity to refinance your home loan. Refinancing your mortgage will allow you to lower your payment, save on interest, and borrow against your home's equity to pay off debt or make needed home improvements. Here are some considerations to be aware of when you are considering a home mortgage refinance.

Understand the Appraisal

When you are going through the process of refinancing your mortgage, your bank lender is going to need to know the true value of your home in the current real estate market. In the time since you purchased your home, it will have changed in value and likely has increased, which is why you are wanting to refinance your mortgage. A licensed appraiser will come out to your property to evaluate the property and any improvements you have made as well as its current condition. They are also going to look at comparable property values in your area, which they evaluate by looking at recent home sales. 

Once your appraisal has been completed, your mortgage lender will provide it to the underwriters and help complete the refinance process. The value of your home over what you owe on it will tell you how much equity your home has, which you can borrow against. For example, if your existing mortgage loan balance is $280,000 and the property appraised at $400,000, then you have $120,000 in equity. And if you are currently paying private mortgage insurance (PMI) because your original mortgage was for more than 80 percent of the home's value, you will be able to eliminate the private mortgage insurance.

Prepare For Closing Costs

Once your refinance is complete and you are ready to close on the new loan, your mortgage lender will let you know how much your closing costs are expected to be. This amount will be the cash you will be required to pay at the closing and signing meeting. Closing costs will be anywhere from three to six percent of your home's original loan balance and will cover costs, such as the fees for the application, appraisal, inspection, and loan origination, as well as the title search and insurance.

In some circumstances, you will be able to refinance your closing costs into the refinanced mortgage loan. Talk to your lender about this option, but understand that it will increase the amount you are borrowing and can increase your new monthly payment.