Mortgage Refinancing

Mortgage refinancing can be a great way to lower your mortgage payments, shorten your loan term, and use some of your home equity.

How does refinancing work?

When you refinance your mortgage, you take out a new loan, and the funds from the new mortgage are used to pay off your existing loan. Your new mortgage will come with new terms, including the interest rate. If you can secure a lower rate than your previous mortgage, you can potentially save thousands of dollars over the life of your loan.

There are plenty of reasons to refinance your mortgage:

  • Save on mortgage interest over the life of the loan
  • Reduce your mortgage payments
  • Shorten the term length of your mortgage
  • Swap your adjustable-rate for a fixed-rate mortgage, or vice versa
  • Get rid of private mortgage insurance (PMI) premiums
  • Cash out some of your home equity

Refinancing a Mortgage, Step-By-Step

Apply With Required Documents

Much like you did when you first took out your mortgage, you’ll need to apply for a refinance. When you apply, we’ll ask you for the same type of information you provided when you originally bought your home. More specifically, we’ll look at factors such as your income, debt, assets, and credit score to determine whether or not you meet the criteria to qualify for a mortgage refinance.

Some of the documents you may need include the following:

  • Bank statements
  • W-2s
  • Pay stubs
  • Tax returns
  • 1099s
Lock in Your Interest Rate

Once approved for a refinance, you may want to lock in your interest rate. That way it won’t change before closing. Rate locks range anywhere between 15 to 60 days, but ultimately depends on the loan type.

Underwriting Takes Place

After your refinance application has been submitted, the underwriting process begins. During this process, we’ll verify your financial information to make sure everything on your application is accurate.

Your Home is Appraised

The details of your home will also be verified, just as it likely was when you first bought it. The appraiser will assess your home and provide you with an estimate of its current market value, which must be equal to or higher than the loan amount you’re requesting. The details of your closing will be provided to you after the appraisal is complete.

If you’re refinancing your mortgage to take out cash from your home’s equity, then the property value will dictate how much you can access.

Close on Your New Mortgage

Once the underwriting and appraisal processes are done, your new mortgage is ready to close. A few days before closing, you’ll receive a Closing Disclosure that lists all the specific costs associated with your loan.

You’ll have a chance to review the document in detail. If all is in order, you’ll sign the new loan documents and cover any applicable closing costs if you don’t roll them into your mortgage.

Mortgage Refinance FAQs

How much does a mortgage refinance cost?

Closing costs on a mortgage refinance usually range between 2% to 6% of your home loan’s principal balance. The exact amount will depend on your loan amount, loan type, term length, and your credit score.

Are refinance rates the same as mortgage rates?

The rate you can get when you refinance will depend on today’s going rate, your credit score, income and debt levels, and the loan amount you request. If rates are lower today than they were when you first took out your mortgage and your current credit and financial health has improved, you can refinance your home loan with a lower rate to save on interest payments over the life of the loan.

Will refinancing affect my credit score?

When you apply for a mortgage refinance, your credit score will be checked. This is known as a “hard inquiry”, which involves pulling your credit report to review your credit history. This process will cause your credit score to dip, though only temporarily.

Just make sure not to apply for any other loans or credit accounts for a few months while your refinance application is in the works.

When is it a good time to refinance?

You may consider refinancing your mortgage when:

  • Mortgage rates are very low today compared to what they were when you took out your current mortgage
  • Your financial and credit health has improved since you initially applied for a mortgage
  • You want to reduce your mortgage payments
  • You accumulated enough home equity to eliminate private mortgage insurance (PMI)
  • You want to pay off your mortgage faster by shortening your loan term
  • You want to access some of your equity with a cash-out refinance
Are the savings worth refinancing?

Closing costs range from 2% to 6% of the loan amount, so you’ll need to determine how long it will take for you to reach the break-even point to recoup these costs. For example, if it will take you 3 years to break even, you could lose out if you sell your home and move before you reach that time frame. Further, if you’re close to paying off your home loan, refinancing might not make much sense.

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