In order to make larger purchases, sometimes you need a loan. Many people in this country have some type of loan. However, there are some instances where refinancing your loan just makes sense. Sometimes, your loan just needs to be altered. When you refinance, you replace your current loan with a better loan. It could save you money, or it could lower your monthly payments. You might want to shorten your loan term. This article will explain how refinancing works.
Refinancing has become a popular thing to do in recent years. Before you refinance, determine your goals. Do you want a lower monthly payment, or do you want to shorten the term? Refinancing could get you a lower interest rate. You usually need to have paid down your current loan a little before you are eligible to refinance. If a refinance matches your goals, then research your options to see if it is right for you.
Limits and Amounts
With refinancing, you normally must have paid down your loan somewhat. You can normally refinance up to the amount of your original loan. When you refinance, it could add years to your loan. Therefore, make sure this is what you want. You should use a refinance calculator to determine how much money it will cost you. Subsequently, you can find a mortgage refinance calculator here. An auto refinancing calculator can be found at here.
What Types of Refinancing Are There?
When people mention refinancing, most automatically think of a mortgage. However, a home loan is not the only loan that you can refinance. Some options that allow you to refinance a loan include:
• Student Loans – By the time you graduate from college, you might have numerous college loans. Also, you might be able to refinance your loans and consolidate them. This could make your loans easier to manage. Moreover, it might allow you to pay a lower amount each month.
• Auto Loan – Before you refinance your car, make sure it makes sense. Some rates on car loans are based on the age of your vehicle. Make sure you are not paying more money in the long run.
• Mortgage – If interest rates drop, you might consider a mortgage refinance. Since your mortgage is probably your biggest expense, you want to save as much money as possible. Know the closing costs, appraisal fees, and other charges you will need to pay. Use the mortgage calculator to determine if it is worth it.
• Bank Loans – Some banks will allow you to refinance your loan. Your bank might have a special rate. If so, you could move your loan from another lender to your bank.
• Credit Card Balances – You can obtain a better rate if you transfer your credit card balance to another card.
How to Apply for Refinancing
If you wish to refinance your mortgage, you need to know how it works and what you will need to do. Subsequently, the steps for applying for a refinance loan include:
1. Check your credit
After you have determined that a refinance loan is right for you, you will need to check your credit score. If you do not have good credit, you probably need to raise it before applying for a loan.
2. Gather documents
You will still need to have documentation for a refinance loan. Gather your most recent pay stubs, W2s, and tax returns. You will need your most recent mortgage statements and a form of identification.
3. Find the right lender
Research your options to see which lender will offer you the best refinance loan. Your current lender is a good place to start. Some lenders allow a streamline refinance loan. Therefore, less paperwork is required.
4. Fill out an application
You can usually complete an application online. Moreover, make sure your application is filled out as accurately as possible.
5. Review the documents
You will be sent documents that will tell you the rate, monthly payment amount, and the total cost of the loan. Also, make sure you look over these papers carefully to make sure you agree with the terms.
6. Permission to continue
If you agree to the terms, you need to give the lender permission to proceed.
7. Appraisal ordered
If your loan is a mortgage refinance, you will need an appraisal. This will determine the value of your property. Apart from that, it also makes sure you have enough equity in the loan.
8. Underwriting approval
Your loan application will be sent to underwriting for final approval. In some cases, more documentation is needed. The underwriter will make sure you can repay the loan and that all of your documents are in order.
9. Final approval
The lender will then send you another letter that says you are approved. Also, they will list any conditions that are needed on the loan. Read this letter thoroughly to make sure there are no surprises.
10. Lock in your interest rate
You can lock in your rate, so it will not increase unexpectedly. The rate lock will prevent you from being a victim of rising interest rates. These locks usually last for up to 60 days.
11. Sign the documents
You will set up a time and place to close on your loan. Subsequently, make sure you bring your identification with you to the signing.
12. Final closing
After you sign the loan documents, you have three days to change your mind about the loan.
You can then feel confident that your refinance loan is in good hands.
How Does Repayment Work?
You will need to make a payment on your loan each month. Moreover, you can usually mail a check or pay it online. Most lenders permit you to set up automatic payments on the website. Therefore, you know you will pay your loan on time. You do have the option to pay off the loan early. This can usually save you money.
FAQs We Know You Have
How much equity do I need to refinance?
You normally need at least 20% equity in your home.
How much does it cost to refinance?
You will still pay closing costs and some other fees to refinance your loan.
Do I need good credit to refinance?
You will still need to be approved for the loan, your credit will be reviewed.
Must I refinance with my current lender?
No, you can refinance with another lender if you choose.
Refinancing is not a decision to be taken lightly. You need to make sure that it is the right time and you can obtain the best interest rates. Do not let any lender pressure you into a refinance loan. Only you can make that decision. If you think that you should refinance your loan, speak to a lender about your options.