Refinancing can take several hundred dollars off your monthly mortgage payment. You replace your existing loan with another loan for the same amount, but with a lower interest rate. For example, if you trade in your $150,000 loan, 25-year fixed mortgage at 10% interest for the same loan at 7% interest, you’ll save $291 per month.
Refinancing makes sense when market interest rates drop one or more percentage points lower than your present rate. Also, you need to consider how long you plan to stay in your home to break even on the costs to refinance.
The steps to refinance are almost the same for a home purchase:
- you fill out a standard loan application
- the lender approves the loan based on your income, debt and credit history
- you pay closing costs, such as theappraisal and processing fee