Refinancing Your Mortgage

The thought of refinancing your home mortgage can be stressful if you are unfamiliar with the process and haven't done your homework. Here are a few things to help you understand what's involved in refinancing and how to determine if it will be a true financial benefit.

Deciding to Refinance

When you refinance your mortgage, you're actually replacing it with a brand new loan – the process will be similar to the application process you experienced with your original mortgage. Depending on rates and how long you plan to be in your current home, refinancing can be a sound financial choice that can help you:

·         Reduce your monthly payments by taking advantage of lower interest rates or extending the repayment period

·         Reduce your interest rate risk by choosing a new or different type of loan from what you currently have (e.g.: switching from an adjustable-rate to a fixed-rate loan)

·         Reduce your interest cost over the life of your mortgage by taking advantage of lower rates or shortening the term of your loan

·         Pay off your mortgage faster (accelerating the build-up of equity) by shortening the term of your loan

·         Provide funds for major expenses or to consolidate debts

The Mortgage Refinance Process

If you have determined that rates are low enough and it makes sense for you to refinance, then you will want to fill out an application with your lender.  Here are the steps that typically follow in the refinancing process after you complete an application:

1.       The lender will look at a copy of your credit report to see if they can "conditionally" approve your request.

2.       If your credit meets their requirements, they will approve your loan conditionally (meaning the appraisal and income verification will have to meet the minimum guidelines in order for you to be granted a final approval).

3.       An appraiser will come to your house to take a look at your home and property in order to put together a comprehensive appraisal for the lender.

4.       The lender will ask you for copies of your last two years tax returns and W-2 statements in order to verify your income.

5.       If your credit score is good, the appraisal is high enough and your income qualifies, it’s likely that your loan request will be approved.

Once the loan is approved, you will set a date for closing. Things to consider before the closing include:

·         Stay in touch with your lender to keep up on any issues with your loan and to know ahead of time if you need to bring any documentation to the closing.

·         Review your insurance policies to make sure you have adequate coverage for the value of your home and its contents and that your refinance lender is listed as the payee for losses.

·         Evaluate your escrow account for your current mortgage to find out if you have either a deficit or surplus of funds.

·         Verify the amount of cash you'll need to pay for closing costs (your closing agent should let you know ahead of time how much you will have to bring to closing).

As you can see, there are a lot of factors involved in the decision as to whether or not you should refinance and whether or not you will be approved by your lender. 

Sources: Pinnacle Mortgage, Inc. www.pinnaclemortgage.biz; Wells Fargo Home Mortgage www.wfhm.com/loans

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