You may have heard friends and neighbors talk about the great benefits associated with refinancing their home mortgage. For example, some may have pulled thousands of dollars of equity out of their home to pay off credit card debt. Others may have lowered their monthly mortgage payment substantially or shortened their term. If you are ready to take advantage of these or other benefits associated with refinancing a mortgage, you need to learn how to refinance mortgage.
Understanding Mortgage Refinancing
The concept of mortgage refinancing is straightforward. Essentially, you will apply for a new home loan, and this loan will replace your existing home loans. There are various rules as well as types of mortgage refinance loans to consider.
Limits and Amounts
When you apply for a purchase loan, you may be able to apply for a 95 percent loan-to-value loan or more. This may be through a first lien or through a combination of first and second liens. However, when you refinance your loan, you typically need to have at least 20 percent equity in your home. This means that you need to carefully review your home’s current value and your outstanding debt to determine if you will have this 20 percent equity after you refinance your mortgage.
What Types of Mortgage Refinance Loans Are There?
When you want to know how to refinance mortgage, it is important to learn more about the different types of refinance loans available to you. Some of the more common options are:
- A Rate and Term Refinance Loan: No cash out proceeds are obtained through this type of loan.
- A Cash Out Refinance Loan: A significant amount of cash may be pulled out of the home’s equity.
- A Cash In Refinance Loan: You pay off a portion of your outstanding loan balance when you take out the new loan.
There are also options for adjustable and fixed rate refinance loans as well as for different lengths of loan terms. It is wise to review the options carefully so that you make the best decision possible when applying for your loan.
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How to Refinance Mortgage
After you learn more about the options for applying for a refinance loan, you may be ready to learn how to refinance mortgage. These steps will guide you through the process.
- Request rate and term quotes from top lenders, and compare the terms and fees carefully.
- Get pre-qualified for your new mortgage loan. You may do this most easily by filling out a loan application online or by completing the application over the phone.
- After you get pre-qualified, you may need to pay for up-front fees, such as for the appraisal and credit report.
- You also need to provide your lender with a lengthy list of loan documentation. This may include bank statements, tax returns, pay stubs, divorce decrees, and more.
- Your appraisal will be completed, and you will receive a copy of it from your lender or appraiser.
- Your lender will review the documents that you provided. In some cases, additional supporting documentation may be required before you can receive final loan approval. You may be able to track the status of your loan application online or by speaking with your loan representative.
- After your loan request has received final loan approval, you may be able to set up a closing date and time with your title company. The title company will provide you with instructions to follow before closing. For example, you may need to provide the title company with your bank’s wiring instructions so that the loan proceeds from a cash out refinance can be deposited into your bank.
- At the specified day and time, you will arrive at your title company’s office to sign the new loan documents. The title company will file and record all documentation, and your new loan will officially replace any liens currently on the property.
How Does Repayment Work?
As you can see, when you know how to refinance mortgage, you can see that this process is not as complicated as it sounds. In fact, the process is very similar to the mortgage process that you walked through when you applied for your purchase loan.
After you learn how to refinance mortgage, you also need to learn how the repayment process works. Your title company will use the loan proceeds from your new loan to pay off the entire balance of your existing mortgage loans. This will be done at closing. Within a few weeks after your closing date, you should receive statements from your lenders showing that the entire balances have been paid off. You should also receive your first billing statement from your new lender. In the event that you do not receive this first billing statement, you should contact the lender directly to obtain payment information. This will help you to avoid late payment penalties with your new lender.
FAQs We Know You Have
Now that you have a better understanding about how to refinance mortgage, you may have some questions about the process. These are some of the more common questions loan applicants have.
Q. Do you need to use a mortgage broker to apply for a refinance loan?
A. You can use the services of a mortgage broker, but this is not required. Many top lenders accept direct loan applications from applicants. You may be able to apply online through their website or by calling the office directly.
Q. How do you know when the right time to refinance is?
A. Each homeowner needs to review his or her own circumstances to determine if refinancing is a savvy move to make. While there are benefits with refinancing, there are also costs. You may be able to use a refinancing calculator online to help you analyze the options and benefits more easily.
Q. Can you refinance an investment property’s mortgage?
A. Yes, the process for refinancing an investment property’s mortgage is similar to refinancing the mortgage for an owner-occupied property. However, the rates may be slightly higher, and the amount of equity required in the property may also be higher.
Q. Which loan program is best for you?
A. Homeowners refinance their mortgage loans for many reasons, and there is a wide range of loan programs to accomplish various refinancing goals. It is best to determine what you want to accomplish by refinancing before you start shopping for loan programs. Your mortgage lender or broker may help you to narrow down the loan programs that are best for you according to your goals.
Learning more about the refinance process is a great first step to take. But you also need to shop around for a loan program that works well for your needs and budget. Remember to focus your attention on the loan rate and term, loan fees and lender reputation when deciding which program to move forward with. Take time to analyze all of the options before you move forward with the pre-qualification process.