Refinancing is Easier Than You Think
What is mortgage refinance?
Refinancing is the process of paying off your existing mortgage with a new mortgage. Typically, you refinance your mortgage to reduce your interest rate and monthly payment or change the length (or term) of your mortgage. You may also refinance to take cash out from your home's equity.
- HARP Refinance
- The Home Affordable Refinance Program (HARP) was created by the federal government in April of 2009 to allow eligible homeowners with little home... <a href='/glossary/what-is-harp-refinance' title='See the full definition of HARP Refinance'>read more</a>
- Cash-Out Refinancing
- A refinance in which the new loan amount exceeds the total needed to pay off the existing mortgage. The difference goes to the borrower and can be... <a href='/glossary/what-is-cash-out-refinancing' title='See the full definition of Cash-Out Refinancing '>read more</a>
- Home Equity
- Home equity is the difference between the market value of a home and any outstanding mortgage balance(s). A homeowner with a $200,000 property and a... <a href='/glossary/what-is-home-equity' title='See the full definition of Home Equity'>read more</a>
- Interest Rate
- The percentage of a loan amount that it costs to borrow money. <a href='/glossary/what-is-interest-rate' title='See the full definition of Interest Rate'>read more</a>
- Rate and Term Refinancing
- A mortgage refinance that replaces the existing mortgage with a new one but does not disburse cash to the borrower. Rate and term refinancing is... <a href='/glossary/what-is-rate-and-term-refinancing' title='See the full definition of Rate and Term Refinancing'>read more</a>
- Refinancing means replacing one loan with a new, better loan. Improving the terms of a loan can mean obtaining a lower interest rate, a lower monthly... <a href='/glossary/what-is-refinancing' title='See the full definition of Refinancing'>read more</a>
This guide covers the topic of how to refinance a mortgage in five simple steps. There are many reasons for refinancing a mortgage -- the most common being interest rate reduction, lowering payments, converting adjustable loans to fixed loans, cashing out home equity, payoff acceleration and dropping mortgage insurance coverage. The first step, then, is determining whether refinancing a home will help the consumer achieve his or her goal.
Step One: Goal Determination
Refinancing can involve some compromise -- obtaining the lowest rate means paying higher fees, for example. Lowering the payment can involve stretching out the remaining balance over a longer term, which could mean higher interest expense over the life of the loan. Accelerating the mortgage payoff means accepting higher monthly payments. The first step, then, is determining the goal of the refinance and if it can be achieved under current market conditions. For example, if a homeowner wishes to obtain a lower rate, he or she can compare the current rate to real-time rates from competing lenders with LendingTree's LoanExplorer tool.
Step Two: Lender Selection
There are several ways to find mortgage lenders, but the most efficient method is by obtaining quotes online. This allows the borrower to request and receive information quickly. That's vital because mortgage rates change continually as financial markets move. Quotes received hours apart may not be useful if bond prices are changing quickly. The homeowner should check pricing and then interview several lenders with competitive rates.
Step Three: Program Choice
Most refinancing goals can be met with more than one program, and a knowledgable loan professional can help borrowers winnow out the most appropriate program for their needs. For example, homeowners desiring smaller payments can achieve them by finding a lower interest rate, stretching out their remaining balance over a longer term or choosing an interest-only loan. The loan officer should assess the borrower's risk aversion, expected tenure in the home, and plans like retirement or starting a family.
Step Four: Refinance Application
Refinancing a mortgage involves a mortgage application. Today, most loan officers or processors interview applicants and complete the forms for them. Applicants should provide statements from bank and investment accounts, their most recent two pay stubs and W-2s (for salaried employees) or tax returns (for income from commissions, self-employment or investments). A mortgage underwriter (human or automatic) may request additional documents like divorce decrees, business licenses or letters explaining credit issues. Credit reports are pulled and unless the refinance is a streamline product, the property is appraised. The efficiency of the lender and experience of the loan officer are crucial, so borrowers should interview lenders and check their reputations. LendingTree provides ratings and reviews of lender partners to help customers find the right company for the job.
Step Five: Lock and Close
The final step is locking in a mortgage refinance rate and closing the loan. Locking a rate can be done at any time during the refinance process. Until the interest rate is locked, borrowers are said to be "floating" their mortgages. Once a rate is locked, it is guaranteed until the lock expires -- unless there are "material" changes to the application, such as the borrower choosing a different program or the home appraising for less than expected. Borrowers who are floating their mortgages can check current mortgage rates before deciding to lock or continue floating. At closing, the final costs of the refinance are reconciled to the costs disclosed when the loan was locked. The actual costs cannot exceed the disclosed costs by more than allowed by law or the lender has to absorb the excess.
Closing a refinance differs from closing a purchase. If refinancing a primary residence, there is a three business day rescission period after the borrower signs the final documents. This is a cooling off period in which the borrower can back out of the refinance for any reason. Once that period expires, the refinance loan is funded and the old loan is paid off.
See what others are sayingLendingTree's free services have received rave reviews. See what the experts at Top 10 Reviews have to say about LendingTree.
Frequently Asked Questions
My wife and I are looking to refinance our 1st and 2nd mortgage and are at wits end.
4 Answers | asked 9 months ago
What's the minimum credit score needed to refinance?
5 Answers | asked 11 months ago
4 Answers | asked 5 months ago
Pay more monthly from refinancing?
3 Answers | asked 9 months ago
FHA Loan Refinance To Conventional
5 Answers | asked 9 months ago
How do I know if I qualify to get a refinance loan?
3 Answers | asked 11 months ago
How many loans have you processed as a loan officer.
3 Answers | asked 22 days ago
4 Answers | asked 5 months ago
refinancing after a foreclosure
4 Answers | asked 5 months ago
3 Answers | asked 5 months ago
Recent Refinancing Guide Articles