March 19th, 2021 3:03 PM by Jackie A. Graves, President
Refinancing your mortgage can seem complex, but a refi at the right time could save you a significant amount of interest over the life of your loan.
In this article, we're breaking down common misconceptions about the refi process and answering some frequently asked questions. Remember: if you're thinking about refinancing, it's important to speak with a trusted lender or housing counselor – they can help you fully understand your options and work to get you the best rate possible.
Can I refinance if I don't have 20% equity?
If you have less than 20% equity in your home, you may qualify for a refinance, depending on your credit rating. Your lender will require you to pay private mortgage insurance (PMI), and those premiums will be rolled into your new monthly mortgage payments.
How many times can I refinance my mortgage and how long should I wait?
There's no limit to how many times you can refinance your mortgage. If you have a conventional mortgage, you might be able to refinance immediately after closing your previous refi.
It's important to remember that refinancing isn't free – and your credit score may be impacted if there are multiple credit inquiries. If you're considering refinancing into a lower rate, make sure the savings are worth the refi.
Is it worth refinancing to save 1%?
Securing a lower Interest rate is a good reason to refinance but it is only one part of the overall picture. For example, if it's going to take three years to recoup the cost of refinancing and you plan on moving in two years, it probably does not make financial sense to refinance.
You'll also want to consider the term of the loan. For example, if you have 20 years left on your 30-year fixed-rate mortgage and you refinance into a 30-year fixed-rate mortgage, you've essentially extended the term of your loan and will pay more interest over the life of the loan as a result.
To get an idea of how much your refinance could save you, use our refinancing savings calculator.
Can I refinance for free?
When you refinance your mortgage, you are essentially applying for a new home loan and should be prepared to cover closing costs. The costs are typically about the same as what you paid when you closed on your original loan and will depend on where you live and your loan amount.
If your lender offers a no-closing-cost refinance option, it's likely that those costs are being rolled into your total loan balance, which could result in a slight increase in your monthly mortgage payments.
If you're unsure about your ability to cover the costs of refinancing, ask your lender if they can work with you to cover some of the fees. A housing counselor can also help you understand different options to pay closing fees. Many state and local housing commissions offer closing cost assistance programs. You may even be eligible for a grant to cover your refinancing expenses.
Use Freddie Mac's refinancing costs calculator to estimate how much refinancing to a new loan could cost you.
Can I refinance without a credit check?
When you apply for a refinance, lenders are required to check your credit score and history to assess your record of paying bills and other debts on time. Remember, your credit is just one of the "four C's" criteria lenders use when deciding your loan legibility.
Do I have to change lenders when I refinance?
You can refinance your mortgage through your existing lender or a new lender. Either way, it's recommended that you complete a loan estimate pdf with more than one lender to make sure you're getting the lowest interest rate possible.
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