Some Tips for Refinancing a Mortgage

In layman's terms, a refinance simply means that you trade in your current loan for a better one. 

According to the National Bureau of Economic Research, home values are higher now than during the peak of the 2000s housing bubble and there’s a good chance that this boom will continue.

If you’re reading this article then you’re probably considering refinancing your mortgage.  Why?  This is the first question you need to ask yourself.  If you’re not really sure what your goal is, the likeliness of it happening is slim to none.  Know your ultimate goal well in order to see if you can achieve it.

Some common goals when refinancing a mortgage are:

·         To Lower rate:  To save money by paying a lower rate or to change from an adjustable–rate to a fixed–rate mortgage.

·         To Cash out:  To pay off debts, do renovations or build a nest-egg (investment).

·         To shorten the term:  Perhaps turning a 30–year loan into a 15–year one.

Regardless of your reason, you’ll need to understand your options, the benefits and the eligibility standards that you’ll have to meet in order to get the best rate when leveraging your home’s value. 

Let’s walk through some basis steps to take when planning a refinance:

1.      Make sure the currents rates are low

Shop for rates.   You will reduce the rates when you contact a few lenders and discuss their loan options.  Comparing values from least 3 different lenders is a good place to start.  Providing that your credit score is good or better than good, you can negotiate interest rates and fees.  Oftentimes, multiple offers persuade lenders to compete against each other for your business.

2.      Know your property value

There was a dramatic increase in the value of homes during the pandemic.  According to the National Association of Realtors the median price of a home in June of 2021 was just over $363,000 – up from about $294,000 a year earlier.  This rise may very well have increased your equity so you’ll need an appraisal to get the exact figures up-to-date.  Repainting and providing receipts for any home improvements will ensure the maximum increase to your home’s value.

3.      Contact a lender

There is no law that obliges you to proceed with a refinance when you meet with a potential lender.  You can see several lenders and compare their quotes before choosing.  You can even cancel the whole thing up to the day before closing.   That said, a lender can be useful in giving you an accurate rate quote and send you numbers in writing for comparison.

4.      Make application

Make full application with your chosen lender, which includes providing supporting documents such as:

§  Appraisal

§  Paystubs

§  Tax returns

§  Credit reports

§  Statements of debts

§  Statements of assets

5.      Verify loan terms

Read the fine print and ensure that you’re still in line with your initial goal.  Refinancing wouldn’t make financial sense if the upfront costs exceed the amount of money you’d be saving or if you’ll end up spending more on the interest in the long run.

6.      Finalize

Sign the final paperwork and wait three days.  On the fourth day, the loan should “fund”.  This means that your previous loan has been paid in full.  Start making your new mortgage payments within 30 to 60 days.

Following these steps should assist in a successful refinance – whether it’s to save money with a low rate, pay off your mortgage balance faster, or cash out some of your home equity.