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Step 1: Decide
First, you’ll need to decide if refinancing makes sense for you in the short-term and long-term. Remember, refinancing doesn’t eliminate your debt, but it can lower your monthly payments, give you cash from your home’s equity, reduce the term of your loan, or change the type of mortgage you have.
Step 2: Know the Terms
How much you pay on your refinance is determined by several factors. Getting to know these terms will help you understand the process.
Interest Rate: The percentage you pay for the use of money you borrow. Interest rates are based on several things including market conditions, your credit score, down payment and type of mortgage, just to name a few.
Discount Points: One point equals 1% of your mortgage amount. You may be able to pay points up front to lower your interest rate. Plus, points can be tax-deductible. Consult your tax advisor.
Origination Fee: A fee charged by the lender for making a real estate loan. This is typically a percentage of the loan amount. You may be able to finance the origination fee as part of your loan amount.
Loan Term: The length of time you have to pay off the loan.
Step 3: Choose a Lender
Now that you’ve decided refinancing is right for you, it’s time to choose a lender. Do your homework and consider not only the fees, but their level of service and your potential long-term relationship.