7 Things to Expect when Refinancing Your Mortgage ...

By Valencia

Refinancing your mortgage is one way to achieve a better rate and terms. However, refinancing involves more than walking into your lender’s office and requesting a new mortgage. There is a process and fees. And if you don't know what to expect when refinancing your mortgage, you might be caught off guard.

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1

New Application and Credit Check

When refinancing your mortgage, the mortgage lender will ask that you complete a new home loan application, and the bank will check your credit. The fact that you already have a mortgage in your name does not guarantee your approval. Your situation could have changed since you last received a mortgage. Therefore, the bank has to confirm that you're able to qualify for a new loan.

2

Careful Review of Finances

In addition to a credit check to determine creditworthiness, the bank will also ask for your recent paycheck stubs and tax returns. This is to verify your source of income and your employment history. Unfortunately, if you became self-employed, took a lower paying job or quit your job since getting your original home loan, any change to your financial status might disqualify you.

3

A Home Appraisal

Before the bank will approve your mortgage refinancing, they will send an appraiser to your house. This is how they assess the value of your house, and this step is crucial if you're considering a cash-out refinancing. With a cash-out refinancing, you can borrow money against your equity for debt consolidation, home improvements and other purposes. However, you must have sufficient equity to receive cash from your home.

4

Closing Costs

Unfortunately, refinancing a mortgage loan will involve closing costs. These costs can range from 2% to 5% of the mortgage balance, depending on your state. Closing costs include the title search, the loan origination fee, and other mortgage related costs, such as discount points. These costs are paid out of pocket at closing, however your lender might wrap these costs into the mortgage balance to lower your expense.

5

New Repayment Period

Refinancing your mortgage loan resets the clock on your home loan term. Therefore, if you’re on target to pay off your home loan in a few years, you might consider whether refinancing is the right choice. Refinancing can create a new 30-year mortgage — or a 15- or 10-year mortgage, if offered by the bank.

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6

Lower Your Interest Rate

The primary reason that many homeowners refinance is to acquire a lower mortgage rate. Since the mortgage rate you receive is directly tied to your credit history, it pays to have a good credit score. You can refinance with a credit score as low as 620. However, borrowers with scores over 700 can typically negotiate the best rates.

7

Lower Your Monthly Payment

By acquiring a lower interest rate, you're ultimately reducing your mortgage payment. This is a major plus, especially if you're cash-strapped each month. Lower mortgage payments can free up cash, which can be used to pay off debt or increase your savings.

With mortgage rates low, now is the time to refinance your home loan. Contact your present lender to receive a no-obligation quote, and then contact two or three other banks to compare rates. When do you think is the best time to refinance a mortgage loan?

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