A Guide to Mortgage Refinance in Austin

Welcome to the Austin refinancing guide. On this page, you'll learn how to refinance your Austin mortgage loan in step-by-step fashion. We will cover the most common reasons for refinancing, the steps involved, and how to begin the process. But first, a quick definition.

Mortgage Refinance -- This is the process through which you pay off your current home loan with a new one. Homeowners use refinancing for a variety of purposes, all of which are discussed below. But the primary goal is usually to save money over the life of the new loan.

This definition naturally leads to two related questions: Why do people use Austin mortgage refinancing, and when does it make sense to do so? Let's talk about the reasons to do a refi first, and then we will address the "when" question.

Reasons for Refinancing Your Austin Home Loan

Why is refinancing such a hot topic for Austin homeowners? What motivates people to use this kind of financing strategy? Most people who refinance an Austin mortgage loan do it for one of the following reasons:

1. To get a lower interest rate
2. To pull cash out of their home equity
3. To switch from an adjustable rate (ARM) to a fixed-rate mortgage
4. To shorten the term / length of the loan
5. To do several of these things at once

Let's talk a little more about each of these reasons.

1. Getting a lower rate. This is by far the most common reason for Austin refinance loans. By securing a lower interest rate on the new loan, you could potentially save a lot of money. Of course, you have to stay in the home (and keep the new loan) long enough to recoup your closing costs. Later in this article, we will talk about how to calculate your savings.

2. Tapping your equity. You can refinance your home to pull cash out of your equity. This is referred to as cash-out refinancing. Homeowners often do this to pay for a home improvement project, to put a child through school, or to pay off high-interest debts like credit card balances. Home equity can be one of your best assets, though, so use this strategy with caution.

3. Ditching your ARM loan. Adjustable-rate mortgages are unpredictable. After the first adjustment period, an ARM loan could increase your monthly payment year after year. But a fixed-rate mortgage loan is completely predictable. The interest rate on a fixed loan will stay the same for the entire term, even if it's 30 years. Many Austin homeowners use mortgage refinancing to transition from an ARM to a fixed-rate mortgage. 

4. Shortening the term. If you have enough equity in your home, you can refinance the loan in order to pay it off sooner. This is another reason for Austin mortgage refinance loans. The size of your monthly payment will increase, but you will save money in the total interest paid over the term of the loan. You'll also be debt-free sooner.

5. Multitasking. In some cases, it's possible to achieve multiple goals by refinancing. For example, you could refinance to switch from an ARM to a fixed mortgage, while lowering your rate at the same time.

When to Refinance Your Mortgage

Those are the most common reasons for mortgage refinance in Austin, Texas. The next question you should be asking is: "When does it make sense for me to refinance my home?" Some homeowners believe that refinancing will always benefit them, no matter what the circumstances are. This notion is simply wrong. There are only certain scenarios where a refi benefits the homeowner.

Here's our advice. If you will save more money with the new loan than the amount you spend in closing costs, then refinancing probably makes sense. If you can do this while accomplishing some other goal (like switching from an ARM to a fixed rate) ... even better! The Home Buying Institute has some good advice on this subject as well. It's worth a read.

5 Steps to Refi Success

Let's recap some of the key points we've covered so far. Refinancing is when you replace your existing mortgage loan with a new one. There are several reasons for doing this. You might do it to lower your payments, pull cash out of your equity, shorten the term, or secure a fixed rate of interest. A refi only makes sense when you can accomplish one or more goals. If you pay more in closing costs than what you save over the term of the new loan, refinancing does not make sense.

That brings us up to speed. Now let's talk about the steps you'll go through to refinance your Austin mortgage loan. This process varies slightly from one borrower to the next, but the general sequence of events will go something like this:

1. Identify your goals. Why are you refinancing your home? Do you just want to lower your payments by securing a better interest rate? Or do you plan to tap into your equity with a cash-out refinance? You need to identify your goals early on, because it affects the rest of the steps below.
2. Measure your equity. If you don't have enough equity in your home, you won't be able to refinance. The amount needed will vary from lender to lender (and other variables). Home equity is the current value of your home minus the mortgage amount owed. Example: if your home is worth $300,000 and you owe $150,000 on the loan, then you have $150,000 in equity (or 50% of the value). Depending on your refinancing goals, you might need anywhere from 5% to 20% equity to be approved.
3. Review your credit. What's your current credit score? This is one of the first things a lender will check when you apply for an Austin refinance loan. It's also one of the top-three reasons people get turned down for refinancing (along with insufficient income or equity). Your credit score is also one of the factors that determine your interest rate, so it's doubly important. You never want a mortgage lender to know more about your credit than you do. So check your FICO scores before applying for a loan.
4. Research refinance rates. You can file this one under 'A' for awareness, along with item #3 above. When refinancing your Austin mortgage, you need to be aware of current lending trends. In particular, you want to know about the average rates on loans.
5. Apply for the loan. Once you've completed steps 1 - 4 above, you're ready to apply for a loan. This step is fairly straightforward. Since you're already a homeowner, you should be familiar with the mortgage-application process. Basically, you'll submit a loan application and provide a variety of financial documents. The lender will then check your credit and verify your income, to determine whether or not they can work with you.
6. Determine if the loan benefits you. Let's assume the lender makes you an offer. It includes the interest rate and terms of the loan. So what's next? Now you need to make sure the refinance will benefit you. Refer back to the goals you identified in step #1 above. Specifically, you want to know about the break-even point (BEP) for the loan. This is the point where you begin to save money after refinancing the home. If you fall short of the BEP (based on the interest rate offered), then it doesn't make sense to refinance the loan.

As mentioned earlier, this is just a basic overview of the Austin mortgage refinance process. Your experience may be slightly different, based on your financial situation and goals. With that said, you will probably go through all of these steps in some manner.