Refinancing A Mortgage: Here’s How It Works

What Is Refinancing and Why It Makes Sense 

Simply put, refinancing your mortgage is changing out your old loan for a new one and can be a smart move for many reasons. 

Whether you can save money on your monthly mortgage payments thanks to lower interest rates, or you’re ready to take the next step in a large home improvement project and have enough equity in your home to borrow cash, refinancing can help. 

Here are some of the great benefits to why people refinance their home mortgages: 

• Reduced monthly payments:  Lower interest rates or loan-to-value (LTV) ratio is smaller 
• Improved credit score = lower interest rate
• You can afford higher monthly payments:  You can reduce your loan term; for example, if you go from a 30-year mortgage to a 15-year mortgage, but may pay more each month, your mortgage will be paid off sooner
• The fixed period on your adjustable-rate mortgage (ARM) is ending: When the fixed period of your ARM ends, you will need to refinance and switch to a fixed-rate mortgage
• You want to take cash out: You can use the equity that your home has accrued to reinvest back into your home for major renovations or repairs, such as building a pool or upgrading your kitchen/bathrooms.
• You want to consolidate debt:  If you have more than one type of debt, such as credit card debt, student loans, or a second mortgage, you can consolidate these debts into one, more affordable payment.
• If you have credit card debt, consolidating debt can be very advantageous as the average credit card debt in America is 14.52% and mortgage rates are at an all-time low average of around 3% 

How to Refinance Your Home 

You have decided that refinancing is beneficial to your property, financial situation, budget, and lifestyle. What should you expect next? Here are the steps in the refinancing process. 

A typical home refinance can take between 20 and 45 days. 

Step 1: Research 

Now that you are ready to refinance you need to make contact with a mortgage lender. You may want to start by contacting your current mortgage lender. Some homeowners also contact other local banks and credit unions to see if they can negotiate a lower interest rate. Remember to ask for recommendations for your local neighbors, friends, or even family. 

While you are researching, make sure you know and understand what type of refinancing you want to do. Are you trying to reduce your loan rate (i.e. going from a 30-year loan to a 15-year loan) or are you trying to take out cash from the equity your house has accrued? 

Step 2: Gather Documents and Apply for the Loan 

Once you know you are ready to finance, start gathering all the necessary documents your lender will require to start the process. Most of the documents will be the same ones needed when you first purchased your home: 

• Pay stubs from the past month 
• Bank statements from the past two months 
• W-2s or 1099’s from the past two years 
• Tax returns from the past two years 
• Your latest mortgage statement 
• Your homeowner’s insurance policy 

If you are refinancing your home and are married, make sure you have supporting documents for both people. 

Take your time filling out the forms, as any mistakes can slow down the refi process.

Step 3: Receiving The Loan Estimate And Processing The Loan 

Within three days of submitting your loan application, you should receive a loan estimate that includes all the details of the loan. The loan estimate will include details such as your new monthly payment, closing costs, and any disclosures. 

Next, your lender will go through all the documents that you have given them and process your loan. 

Step 4: Getting A Home Appraisal  

Next, the home appraisal process begins. Your lender needs a home appraisal to ensure that your home is worth enough to qualify for your new mortgage—if you were to back out on your new mortgage, the lender will need collateral. If your home appraises for more or less than what was initially thought, the lender may need to revise the loan estimate. 

The lender will normally arrange for the appraiser to come out and inspect your home, but the homeowners are typically responsible for the cost of the appraisal. This can range on average between $300-400. An appraiser will take pictures, notes, and write a report on the property. 

Step 6: Underwriting 

Next is an underwriting review. An underwriter will carefully examine the documents to make sure everything is accurate and they will verify that you can afford the new loan payments.

This step takes the longest in the mortgage refinancing process and you may be asked to provide additional documents or answer any further questions the underwriter has. If the underwriter finds your new loan satisfactory, you will receive an approval letter that states the final terms and conditions of your loan. 

Step 7: Closing 

You are now ready to close! You will receive a preliminary closing statement that states the terms and closing costs. 

If everything meets your approval, you and your lender will select a date, time, and location for closing. At closing, you will sign the final loan documents in the presence of a notary public or lawyer. 

This is the last step in the refinancing process and your loan is now official! You will have a three-day “right of cancel” period after closing if for any reason you change your mind about refinancing (but with the benefits we mentioned, why would you?).

Refinance With True Concept Title 

The mortgage experts at True Concept Title can manage the entire refinance process from start to finish. Our national title and mortgage experts handle mortgage loan refinances daily. 

Are you ready to refinance your home? Call True Concept Title at 813-263-7168 and let us handle the rest!