Refinancing 101: Lower your mortgage payments and save money

Do you find yourself contemplating your mortgage, perhaps yearning for better terms or lower payments? If so, you're likely considering refinancing your home loan—a powerful tool many homeowners leverage to better their financial health. This guide serves to shed light on the intricacies of refinancing and arm you with the knowledge to make an informed decision.

Refinancing is the process of replacing your existing mortgage with a new one, with different terms. Here are the three main types of refinancing and their benefits, drawbacks, and typical scenarios:

Why Refinance Your Home Loan?

Homeowners refinance their loans for a myriad of reasons. The most common are:

1. Lower Interest Rate: Refinancing can secure a lower interest rate, which could save you thousands over the life of your loan.

2. Shorten Loan Term: If you have a 30-year loan but wish to pay it off sooner, refinancing to a 15-year loan could be beneficial.

3. Switch Loan Type: You might want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa.

4. Tapping into Home Equity: If your home has appreciated significantly, you might want to convert that equity into cash for a large purchase or debt consolidation

The right time to refinance

Timing your refinance depends on both personal circumstances and market conditions. From a market perspective, a general rule of thumb is to consider refinancing when interest rates drop significantly compared to when you first took your mortgage. Lenders offer lower interest rates for a number of reasons, including market trends, federal policy changes, and individual creditworthiness. For instance, when the market is flush with money (liquidity), lenders reduce interest rates to attract borrowers.

From a personal viewpoint, it could be an increase in your home's value, an improvement in your credit score which would allow you to secure better mortgage terms, or a strong desire to change your loan terms.

How to calculate new payments after refinancing

Understanding how your payments can change after refinancing is crucial. You can estimate your new payments using online calculators. Here's an example:

In this example, refinancing to a lower interest rate would result in a monthly payment decrease of $115.

The step-by-step process to refinancing

1. Determine your goal: Understand why you want to refinance and what you aim to achieve.

2. Check your credit score: Your credit score will influence the terms of your new loan.

3. Compare lenders: Different lenders offer different terms—research is key.

4. Get a home appraisal: Your home’s value will play a part in the refinancing process.

5. Submit your loan application: Fill out and submit your application for the new loan.*

6. Prepare for closing: Once your application is accepted, you'll go through the closing process, similar to your original mortgage closing.

With Milo's streamlined and fully online process, you can close your refinance in half the time it takes with a traditional bank.

Refinancing your mortgage can be a powerful tool in managing your finances. Whether your goal is to lower your monthly payments, cash out equity, or change your loan type, understanding the ins and outs of refinancing is crucial. Always consider your options carefully, and seek professional advice if necessary.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.