The Complete Guide to Refinance Your Mortgage
Start by reviewing your current mortgage loan rate, term and balance. What is your current mortgage rate? Are you on an adjustable-rate or a fixed-rate product? How many years are left on your current mortgage term? What is your current mortgage approx. balance? Are you planning on paying off more than one home loan (or debts) with a refinance? How long is your projected stay in the home? What is your current home value in today’s market (check with your Realtor)? What is your FICO credit score, documented current monthly or annual income and documented liquid assets?
Once you have these answers, you are ready to explore refinancing options to compare lenders, mortgage rates and closing costs.
What is a mortgage refinance?
A mortgage refinance is a new loan that pays off and replaces an old mortgage loan. Since mortgage loans are not typically amended, a refinance mortgage is the easiest means of restructuring mortgage debt. There are several reasons why you might do this: to lower the interest rate or payments, to shorten or lengthen the loan maturity, or to increase or reduce the loan amount.
Determine reasons and goals for considering refinancing
Determining your reasons for refinancing will help guide you to a home loan lender who is best suited for the goals you wish to accomplish. And speaking with an experienced loan officer that understands your financial profile and goals may translate into additional benefits you have not considered.
Many homeowners start thinking about refinancing when there's some part of the existing mortgage loan that's no longer appealing. Examples include:
- Your payment is too high
- Your interest rate is higher than what's available on the market
- Your adjustable interest rate is too volatile
- You want to pay off your mortgage in 15 years instead of 30
- You want to cash out your home equity
A refinance calculator can help you run the numbers, but the decision usually depends on how market mortgage refinance rates compare to what you're currently paying. If you can find a refinance mortgage that will save you money and help you achieve your financial goals, then the time is right.
Expectations in the mortgage refinancing process
The application process for a mortgage refinance is very similar to what you experienced when you purchased your home. You consult with a mortgage lender, have the home appraised, complete a home loan application, and supply the required documentation to verify your income and assets. You'll have to pay closing costs, but they should be lower than they were when you purchased the home. When the refinance mortgage funds, the new lender automatically pays off the old mortgage lender, including any prepayment penalties, and transfers any remaining funds to you. The old lender releases its claim on the home, and the refinance lender files a new one.
Gather your refinance documentation needed for faster approval
A little effort can go a long ways for a faster approval. Locate your home purchase package that you received at the closing. This will contain some helpful paper work for your lender. You may be eligible for a credit by providing your current Title Insurance policy,
Lenders can vary on what they require, especially once they have evaluated all your information. You may be eligible for a streamline refinance which would speed up the process and reduce the documentation required. But by having the financial documentation put together, you should be covered for any mortgage lender.
Mortgage Refinance FAQs
Refinance related fees normally include: Application fees, appraisal fees, title insurance fees, origination fees, discount point fees, attorney fees, flood certification fees, and recording fees.
Find out what the lenders closing costs will be to determine whether refinancing will be worth it. Get it in writing by requesting a Loan Estimate (LE) from the lender. These costs can be reduced for a streamline refinance.
If you have home equity, you may have the option of refinancing for more than what you owe on your old mortgage. This is a cash-out refinance, in which the amount leftover after the pay-off is transferred to you, and can be used as you wish. Your payment will reflect a higher loan balance, but you could possibly offset some (or all) of the increase with a lower interest rate or extended maturity date.
Shop & compare home loan refinance lenders
Just like you would shop for a good Realtor that will have your best interest at heart, the same is true shopping and comparing lenders. It really is simple if you go with the basics: Communication, honestly, written proposals, researching them online, reviews, referrals and testimonials. Ask the loan officer for 3 referrals from their past customers. Instincts work well for most people in decision making and selecting a lender loan officer, but some are good actors.