Why, When and How to Refinance Your Mortgage

A mortgage refinance means paying off an existing loan and replacing it with a new loan. People refinance for different reasons, here are a few, to get a lower interest rate; to shorten the term; to tap into equity in your home; or to consolidate debt.

Why and When to consider refinancing?

Before starting the refinance process, consider why you want to refinance your mortgage.

• Reduce your interest rate and payment. When your goal is to pay less on your mortgage each month. Usually you want to look for a 1% savings as enough incentive to refinance.
• Reduce your term. When you currently have a 30-year mortgage and you have the opportunity to get a 15-year mortgage, you could pay off your mortgage in half the time and save on interest cost. The monthly payment can sometimes go up with a shorter term, so be cautious when looking at this product.
• Tap into equity. When you refinance to borrow more than your current loan amount, you get a check for the difference. This is called a cash out refinance.
• Consolidate debt. When you owe money on credit cards or a second mortgage, and you want one payment instead of several. You can tap into your equity and do a cash out refinance to consolidate your payments into one; sometimes even saving you money monthly.

How to refinance your mortgage?

After considering why you want to refinance, the next step would be to run the numbers and make sure you get what is best for you. Frontier Bank has a Mortgage Calculator that will help determine the monthly payment. You will need to call your local bank and check to see what interest rates and get fee estimates so you get the best deal. Then consider your break even point to make sure you are making the right decision.

To calculate the break-even point, you take the total loan costs divided by the monthly savings. For example, the refinance fees total $3000 and you will save $100 a month. Divide $3000 by $100. The answer is 30. That means it will take 30 months (2.5 years) to recover the cost of refinancing or to hit your break even point. Everything beyond the break point will be cost savings!

Step by Step of Refinancing your mortgage-

1. Set your goal. Reduce your monthly payment? Shorten the term? Tap into equity?
2. Find the best mortgage rate. Watch out for fees too. You can request a fee estimate from the lender, so you know what to expect.
3. Apply for a mortgage with a lender. You typically do this online or ask the lender for a paper copy whichever you prefer. If you are working with Frontier Bank, here is the link to the application. 
4. Talk with your lender. Make sure you understand everything that will happen during the refinance process and that you understand the fees associated with it. You will receive paperwork that you need to review, sign and return, along with financial documentation. 
5. Lock your interest rate. You will work with your lender on this, once you lock your rate, you need to close your loan within a specified period.
6. Close the loan. This is when you will sign a lot of documents and pay the closing costs that were accrued with the loan. The Closing Disclosure will outline all the costs.
   If you are looking to refinance or have more questions, please do not hesitate to contact Stacey McIntire or myself. We are here to help you through the refinance process and answer any questions. Another resource for additional information on refinancing can be found on our website (www.frontierbk.com).

Molly Peterson
Mortgage Banker
NMLS#1390460
mollyp@frontierbk.com
605.331.2889