Should You Refinance? Learn Reasons Why and the Process

07.09.2021 | Category: Homebuying

Updated 04.17.2024

Refinancing can provide a valuable opportunity for modifying the terms of your mortgage to meet your financial objectives. Whether your goal is to shorten the loan duration, leverage home equity, or secure a more favorable interest rate, refinancing is a great option for homeowners. This process not only enables adjustments to rates and terms, but also aids in transitioning to a product that better aligns with your financial goals. Here are some different refinancing options: 

Rate-and-Term Refinance 

A rate-and-term refinance is a great option for homeowners seeking to modify their interest rate or loan duration, while keeping their loan amount unchanged. For instance, transitioning from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage can help protect you from market fluctuations, and keep your monthly principal and interest mortgage payments stable over the life of your loan. 

Cash-Out Refinance 

A cash-out refinance allows homeowner to refinance their mortgage for an amount greater than their current loan balance, allowing them access to the difference in cash. This additional access to funds can then be used for expenses such as weddings, college tuition, medical bills, home renovations, and more.  

Home Equity Loan

A home equity loan provides a homeowner access to funds by leveraging home equity. Typically, this loan offers a fixed sum of money, usually capped at 85% of your home’s equity. It serves as an alternative to cash-out refinancing, especially for those seeking additional cash without the need to refinance their existing loan. This option is a great option for those who want access to cash whilst maintaining the current terms of your mortgage. 

How to Refinance Your Mortgage, Step-by-Step

The first step in the refinance process is ensuring that you meet the lender’s requirements before proceeding with your application. Three crucial factors that may determine your eligibility for a loan include maintaining good credit, having a verifiable and consistent income source, and maintaining a low debt-to-income ratio (DTI). It is recommended to research into the specific qualifications set by our lender before proceeding with your refinance application. 

Once you are prepared to apply for your mortgage, the next steps include gathering essential documents and preparing for associated costs. Below is a list of documents and information your lender may request during the application process:

• Business and personal tax returns for the last 2 years, including W2s/1099s
• Pay stubs from the past 30 days
• Benefit letters from Social Security or Pensions 
• Trust documentation (if you are using this as a qualifying income)
• Documents related to divorce and/or child support agreements 
• Depending on state regulations, a formal appraisal may be necessary 

During your loan process, additional or updated documents may be requested at any time. It is important to stay on top of these requests. The faster you can provide these documents to your loan officer, the faster they can proceed with processing your loan. 

The next step in your refinancing journey is selecting a loan product and locking in your interest rate. It is essential to communicate openly with your loan officer about your goals for your refinance. Every situation is unique, including yours, and your loan officer can help you find the best loan product for you. 

Locking in your interest rate is just a pivotal as choosing the right product, as it directly affects your monthly mortgage payments. Timing is key in navigating market fluctuations and deciding when to refinance. If you are unsure when to lock in your interest rate, this is something that your loan officer can help you navigate. Once your rate is locked, it will remain at that percentage throughout your loan term. 

After selecting your loan product and locking in your rate, the next step in your loan journey is underwriting. At this stage, a member of your lending team will compile and review all documents, verify your income, and assess loan eligibility. Additional supplemental documents may be requested. 

During the underwriting process is when you will receive your closing disclosure or CD. This disclosure will include details such as loan terms, rates, fees, and associated closing costs necessary to fund your loan. It is important to review the terms carefully to avoid any surprises during closing. 

The final step in your refinancing journey occurs when your loan is cleared to close. Your loan officer will coordinate with you to finalize the signing of the paperwork. Once all loan documents are signed, your refinance process will be successfully completed. If you opted for a cash-out refinance, please note, it may take two to five days for your funds to become available after closing. 

Let Us Help You Simplify Your Refinancing Journey

If you are thinking about refinancing, we understand that the process can sometimes feel overwhelming. That’s why we’re here to offer guidance every step of the way. If you’re unsure where to begin, you can utilize our user-friendly refinancing calculator, allowing you to explore various scenarios and find the perfect choice for you. 

Click here to explore our refinance calculator. 

If you have questions or concerns, contact us for a complimentary consultation. We are dedicated to providing personalized solutions tailored to your needs. Give us a call today at 1-800-24-RATES (2837) and let us help you through your refinancing journey.