If you’ve been in your off-base home for more than a few years, you may want to look into refinancing.
In many cases, refinancing can lower your monthly payments, shorten your loan term, give you funds to use toward upgrading your home (or cover other expenses) or all of the above.
But when do you know it’s the right time to refinance? And how do you do it? This guide can help.
When Should You Refinance?
There are a few different scenarios in which you should consider a refi. The first is when rates fall below the interest rate on your current loan.
If your loan currently has a 6% interest rate, for example, now would be a good time to consider refinancing. Average rates are in the 4% range now, so a refi could give you a lower interest rate and, subsequently, lower payments as a result. You’d also pay less in interest over the course of your loan.
Another scenario in which you’d want to refinance only applies if you have an adjustable rate mortgage. On these loans, your interest rate can fluctuate after a certain period of time. If, after the initial fixed-rate period your interest rate starts to climb, you would want to consider refinancing to a fixed loan in order to have a consistent, reliable payment that won’t bust your budget.
A refinance could also be an option to consider if you need extra cash in-hand to pay off debts, do some upgrades around the house — or even just take a family vacation. You can use a cash-out refinance to tap into your home’s equity for extra money, or you can refinance with a debt consolidation loan to roll debts with higher interest rates into one low monthly payment.
The Refinance Process
Refinancing is just like applying for your initial mortgage. You’ll fill out an application, send over your paystubs, W-2s, tax returns, bank statements, and the lender will verify your employment. You’ll have a closing, in which you’ll get your keys and sign the paperwork, and you’ll have some closing costs as well, just as you did the first time around. Make sure to get a full breakdown of these costs ahead of time, so you can prep your finances for it.
A few differences to note about refinancing:
- You don’t need a down payment for a refi. The equity in your current home serves as the down payment on your refinanced loan. Depending on how much equity you have, it could help you get an even lower mortgage rate.
- You don’t have to use the same lender as your first loan. Shop around, read reviews, and check out rates and fees. Make sure you’re getting the best deal before you refinance.