You'll likely start to hear the word 'refinancing’ after you purchase a home. Your lender may reach out to you with refinancing options, and when interest rates are on the downhill slope, you may even hear friends and family talk about refinancing. But what does it mean? Let’s talk about it.

What is refinancing?

Let’s look at the basics: what is refinancing? Refinancing is, in short, eliminating your previous mortgage and creating a new one. This sounds confusing, but it’s easier than it seems. You may consider refinancing when interest rates drop, or if you want to change the type of loan you originally chose with your mortgage. Regardless of your reasoning, refinancing involves working with your lender to choose new mortgage terms and moving forward with those terms to eliminate your old mortgage.

When should you refinance?

A great question you may ask yourself (and others) is when you should refinance. There is no concrete answer for this! However, many people choose to refinance when interest rates drop. Refinancing during this time can result in lower monthly payments. Another time when refinancing is heavily considered is in preparation for home renovations to utilize home equity. This is called a cash-out refinance.

Keep in mind, there is no one-size-fits-all time to refinance – it's whenever you feel that your mortgage terms could use an update.

Why should you refinance?

Another question you may ask is why you should refinance. As mentioned previously, the most common reason homeowners choose to refinance is because of lower interest rates. Refinancing to a lower interest rate can create lower monthly payments for you. You may also consider refinancing to a different loan type – maybe you initially had an FHA loan, but you would now consider it more beneficial to have a conventional loan. Another consideration about why to refinance is if you want to change the duration of your home loan. You may have initially chosen a 30-year mortgage, but you are more prepared for a 15-year mortgage now. There are also options such as cash-out refinance, where you are able to utilize the equity, you have built in your home as cash, and you can resettle the terms of your home loan. There may be more reasons to consider refinancing, but never hesitate to reach out and ask about your unique situation!

Quick guide to refinancing

Here is a quick “how to” guide on refinancing:

Consider your options and utilize our mortgage calculator to check on potential monthly payments

Work with your lender to discuss if it’s the right time for you to refinance
Determine your home equity, credit score, and prepare your paperwork for a loan application
Submit a loan application via phone, website, or in person with a loan officer
Your lender will guide you through the loan process, similar to when you purchased your home
Your new loan terms will be provided to you and your refinanced loan begins!

Feel like you’re ready to refinance your home, or just simply have questions about when is the right time? Reach out any time! We have the answers you need.

What is Refinancing?