How to refinance

In many ways, refinancing loans is very similar to the process you went through to secure your first mortgage. It will involve research, paperwork, fees, and time.

More than likely, you spent some time researching your original home mortgage. You probably comparison-shopped for product that would best suit your needs and preferences. You probably also learned a lot about the industry.

Luckily, that knowledge will come in handy as you refinance your original loan. Still, you will need to do some research and comparison-shopping. First of all, you should learn about a few options that weren’t available or weren’t attractive when you shopped for your first mortgage: cash-out refinancing and prepayment penalty mortgages.

Cash-out refinancing is available to borrowers who have significant equity in their home. Basically, it involves paying off your original mortgage with a new loan. After paying the original loan, you will have cash left over. That cash is usually used for a major purchase, like college tuition.

Cash-out refinancing is an attractive option because it makes available large amounts of money at relatively low interest rates. Still, the decision should not be made lightly. The act of surrendering your home equity (or even part of it,) means that you will, in effect, have to pay your mortgage again.

The other option is a prepayment penalty mortgage. You should never, ever get a prepayment penalty mortgage when you are financing a home for the first time. It can, however, be a more attractive option upon refinancing.

After you have decided the type of refinancing you want, you will need to do some paperwork and pay some fees, just as you did with your first mortgage. Some lenders will let you skip these steps, but you might have to pay a higher interest rate.