A Step-By-Step Guide To Refinancing Your Mortgage, Reasons Why You Should Do

A Step-By-Step Guide To Refinancing Your Mortgage, Reasons Why You Should Do

Before starting the refinancing process, you should figure out if it’s worth it based on your current mortgage, finances, and market state.

First, consider these questions:

What is the interest rate on your mortgage right now?

If you got a mortgage when interest rates were much higher than they are now, you might be able to save thousands of dollars in interest by refinancing.

How long do you have left on your mortgage?

With this mortgage, do you have a fixed rate? Or do you have an adjustable-rate mortgage (ARM) where the rate could change in the next few years? Refinancing into a fixed-rate loan is probably a good choice if you want to get rid of the uncertainty of a loan that can change for reasons you don’t have much control over.

What is the outstanding balance on your mortgage?

If you’re almost done paying off your mortgage, and the amount you still owe isn’t that much, you might not want to pay the closing costs of refinancing a loan. This will add to the amount you still owe.

How many years do you still have on your mortgage?

Refinancing your mortgage could be a great way to pay off your debts faster than you had originally planned. For example, switching from a 30-year loan to a 15-year one will help you pay off your mortgage faster and save you thousands of dollars in interest charges. But be careful: Even if your interest rate goes down, this is likely to increase your monthly payment.

How long do you plan to live where you are now?

If you think your family will “upgrade” to a new home or if you might get a new job in a different city in the next few years, you might want to wait to refinance.

Check your credit rating

This is a small but important part of getting ready to refinance.

Make a list of lenders to contact

You probably wouldn’t buy the first car you saw on a lot, and you shouldn’t take the first home loan offer you see on the internet either.

Refinancing your home is a big financial decision with long-term effects. If you take the time to do your homework, you can save a lot of money.

Get Quotes

Once you have a shortlist of possible lenders, it’s time to look at what each one has to offer.

How to Get a Quote: Questions to Ask

What is the current rate of interest?

Interest rates are often advertised on websites, TV ads, and billboards, but many of these are “best-case scenarios” that are only available for a short time. Ensure that each lender gives you a clear quote that spells out the interest rate you qualify for and how long you can get that rate.

Do you need any points to receive this rate?

These “points” are prepayments on mortgage interest charges in exchange for a lower interest rate. They are sometimes called “prepaid points” or “mortgage points.” This makes sure that the bank makes money on the loan sooner, which isn’t always good for the person taking out the loan. Clark says that the only people who should pay points on loans are those who are sure they will stay in the home for a very long time.

What are the estimated closing costs?

Unless you’re getting a loan with no closing costs, you’ll have to pay for processing the loan.

Do any “junk fees” apply?

These are fees that may be added to the total cost of your loan even though they are not necessary or important. Clark hates these because they can make a loan that would have been good otherwise bad. It may not be fun to go through all the details, but you should ensure that every fee you’re asked to pay is needed.

Collect the necessary paperwork

When it’s time to process your loan, the lender will look at your finances in more detail to ensure you are not a high credit risk.

Even though each lender may have its list of financial documents it needs, you can expect to be asked for the following:

  • Documents for payroll verification (pay stubs)
  • Personal tax records (W-2 or 1099)
  • Bank statements
  • Statements of any debts that are still owed (car loan)
  • Proof of any assets you claim to own (retirement funds)

Remember that the evaluation process will look at more than just your finances. It will also evaluate your property, including a professional valuation of your home and market analysis of home prices in the area. If you don’t pay your refinanced mortgage, the lender will want to make sure it isn’t putting more money into the property than it’s worth.

Finish Your Loan

Once the lender is happy with the information you give about your finances and your property, they will probably call you to set up a closing date.

This process may be similar to what you went through when you closed on your first loan for the property, but it probably won’t take as long.

You can expect a title company to be in charge of this transaction. However, some refinance closings may only need to be recorded by a notary. If you need to bring money to the closing, you’ll probably need to have a cashier’s check or be ready to send a wire transfer.

From what I’ve seen, the closing will take less than an hour of your time, and you’ll need to sign a huge number of documents. Always take your time and make sure you understand what you’re signing. If you don’t understand something, ask. After all, you’re the one signing here to be financially responsible for years to come!

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