Mortgage Solutions
Refinance
Home loan borrowers should be aware of several key aspects when considering refinancing their mortgage. Refinancing involves replacing an existing home loan with a new one, often with the aim of securing better terms or lower interest rates. Here are some crucial points borrowers should know:
1. Interest Rates and Timing: Monitoring interest rates is essential. Refinancing is most beneficial when interest rates are lower than what you currently have on your loan. Timing is crucial, and borrowers should keep a close eye on market trends to determine the right moment to refinance.
2. Costs, Fees and Obligations: Borrowers should be prepared for various fees, including several months of prepaid property taxes and homeowners insurance ( if they want an impound account where the property taxes and homeowners insurance are paid together with their mortgage payment), title escrow fees, loan fee, a home appraisal fee and a credit report fee. It’s important to calculate whether the potential savings outweigh these expenses.
* Please note borrowers refinancing and who already have an escrow impound account with their current mortgage, for taxes and insurance can expect a refund of that escrow money within 14 days of paying the old loan off.
* Borrowers who choose not to have an impound escrow account of taxes and homeowners in their new loan, will have to pay the 6 months of property taxes if they are due within 60-90 days of funding of new loan, depending on lender requirements.
3. Credit Score Impact: Refinancing involves a credit check, which can affect your credit score temporarily. However, if refinancing leads to better terms and responsible financial management, it can have a positive long-term impact.
4. Loan Term Adjustment: When refinancing, borrowers can choose to change the loan term. For instance, switching from a 30-year to a 15-year mortgage may lead to higher monthly payments but substantial interest savings over the life of the loan. Borrowers should understand the implications of such changes.
5. Purpose and Goals: Have a clear purpose for refinancing. It could be to reduce monthly payments, shorten the loan term, tap into home equity for renovations, or consolidate debt. Knowing your goals helps you choose the right refinance option.
6. Lender Selection: Shop around for lenders and compare their offers. Each lender may have different rates, fees, and qualification criteria. A thorough comparison can help you secure the most favorable terms.
7. Documentation and Qualification: Just like when obtaining the initial mortgage, refinancing requires documentation and qualification. Borrowers should have their financial records in order, including a copy of their most current mortgage statement, tax returns , bank statement (all numbered pages even if left blank), employment details, income documentation such as (paystubs, w2's, and for self employed borrowers, a business license, a profit & loss statement and 1099's if applicable ).
8. Home Appraisal: In many cases, a home appraisal is required during refinancing to determine the current value of the property. Be prepared for this step and ensure your property is well-maintained and you have all smoke detectors and carbon dioxide sensors in view for the appraiser to note.
9. Consider Long-Term Goals: Think about your long-term financial goals. While a lower monthly payment may be appealing now, it’s essential to align your refinancing decision with your overall financial plan.