Most homeowners eventually come to a point where they have to gather the why and how to refinance their home mortgages. Refinancing, a very common transaction in real estate, involves taking out a new loan to replace an older, likely higher cost, loan from a mortgage company.
How to Refinance Your Home Mortgage
First things first, you’ll need to consider the company through which you wish to seek a quote for a refinance. Ordinarily, the original lending institution that offered you the first loan will not be willing to refinance your loan that you already have with them; in refinancing, they know that they’ll have to offer you better terms on a mortgage note that you’re already paying on. The last thing they want to do is make your loan less profitable. So, this time, you’ll need to go to someone else, preferably another mortgage broker who can help you make sense of the market and find the best rate for your soon to be refinanced mortgage.
Secondly, you’ll want to consider how much of the home you want to refinance, and for what term you wish to refinance. If, for example, you have a 30 year mortgage right now, and you’ve paid on it for 15 years, it might make sense to refinance with a 15 year mortgage, which will bring a higher monthly payment, but also a lower total cost of financing.
Alternatively, you might decide that you wish to take some of the money that you’ve paid into the home out of the home inexpensively. If you have a current 30 year mortgage and you’ve paid it for 25 years, only a small amount of the balance remains. Thus, you can take out some of your home equity to spend, invest, or simply save for expenses as you wish. Many homeowners find that after years of appreciating home values and falling home loan balances that their home equity is a great asset to tap inexpensively. Parents with children who plan to leave the home find that a home equity loan is a great way to reduce their interest costs, and pay for their children’s college education, should they so desire.
Preparing to Refinance
Most people who refinance their home haven’t recently signed for a mortgage, and it is likely that the costs and procedures have changed since last speaking to a mortgage broker. Following the subprime credit crisis in the United States, banks and lenders have tightened their lending standards and are now required by law to conduct more due diligence about the people to which they plan to lend, and the home in which they’ll be investing.
To refinance your home it is likely that you will have to:
1. Prove your income, with tax returns and a check stub
2. Show recent account activity on liquid (savings, and checking accounts)
3. Get a home inspection, an appraisal, or both for your home
These steps aren’t time consuming, nor an expense to you—banks will pay for the cost of getting an inspection or appraisal, if necessary—but they often catch soon-to-be refinancers off guard because they’re used to the process of the past. The process of the past, which is frankly illegal today, wouldn’t have required any of this information. Today, more is less, apparently, and banks have to have this information before ever considering an extension of credit, especially for refinancing a home.
Make the process easier by finding and bringing with you these documents every time you go to the lender. They may need copies, and may need to reference data at certain points throughout the process. Putting everything in one large folder is a great way to ensure nothing is lost and everything is accounted for. It will also help in keeping the process as streamlined and as efficient as possible.