You’ve decided the time is right to look into getting a refinance loan for your home. What’s next?
Whether you’ve looked into the reasons for refinancing and are ready to dig into the process, or you’re just getting started, it’s time to reach out to your mortgage loan officer to get your questions answered and complete a new loan application.
Your loan officer can help guide you as you make decisions based on your current financial situation and match you with the right refinance loan option.
Let’s go through the reasons you might want to refinance, the role your loan officer will have, and what you can expect during the process.
Reasons to refinance
Refinancing a mortgage means to replace your existing loan with a new one. Homeowners choose to do this for many reasons, including to get a lower interest rate, shorten the term of their mortgage, or borrow cash from their home’s equity.
Take advantage of low rates
The top reason homeowners choose to refinance is for a lower interest rate. Interest rates are cyclical, and when they drop you can take advantage of this opportunity to reduce your payments over the life of your loan.
Homeowners also sometimes can refinance an existing loan for another one that has a significantly shorter term, without much change in the monthly payment, when interest rates fall.
Switch to an adjustable-rate or a fixed-rate mortgage
Adjustable-rate mortgages can offer lower interest rates than fixed-rate mortgages at first, but they are subject to periodic adjustments based on the current market rates. If this happens, switching to a fixed-rate mortgage can give you a lower interest rate and take away the stress of future rate spikes.
On the other hand, since adjustable-rate mortgages can offer lower monthly payments than fixed-term, this could be an opportunity for you to switch to adjustable-rate. This is best if interest rates are falling and you aren’t planning to stay in your home for more than a few years. This way, you’d reduce your interest rate and monthly payment but not have to worry about higher rates in the future.
Use equity for major expenses or debt
Your home equity comes from the payments you’ve made to your mortgage, including your down payment. It is how much you’ve paid subtracted from how much your home is worth.
Homeowners might access their equity through a cash-out refinance to cover major costs such as college education or home remodeling, or to consolidate debt.
Swap out an FHA loan for conventional
You may have needed an FHA loan as a first-time homebuyer because it was more affordable, but now the Federal Housing Administration Mortgage Insurance Premium (MIP) is weighing you down every month.
If you swap out your FHA loan for a conventional loan, you may not even have to worry about paying mortgage insurance anymore if your built-up equity is above 20%.
How does a mortgage loan officer help with a refinance loan?
While you weigh your refinance loan options, your loan officer will support you by answering any questions or concerns you have. Then, once you’re ready to move forward, they can help you complete a new application and take you through the process again from start to finish.
You might remember gathering all of your documents before you applied for your loan the first time. Preparing to refinance is similar to the prep work you did for your current mortgage. You will need to requalify for a new mortgage, and your financial situation will be re-evaluated so your new loan can meet your current needs.
- How’s your credit score? Often, your score has improved at this point, since you learned a lot about how it worked during the initial homebuying process. This can help you get a better loan this time. If not, your loan officer can help.
- Are you still employed? Your loan officer will need to see your pay stubs and other proof of employment and income again. They need to make sure you’re still able to make your mortgage payments every month.
- What’s your debt situation? Is your debt-to-income ratio* still acceptable? Your loan officer will need to see proof of this as well.
*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income
Do you have some savings?
Refinancing costs 2% to 5% of the loan’s principal, which is similar to the closing costs of your original mortgage. Are the costs worth it to you at this point? Your loan officer can help you weigh the pros and cons.
Refinancing can be the right move for you if it can shorten your loan term, reduce your mortgage payment, help you build equity, or help bring your debt under control.
All things considered, what questions does this bring up for you? Note these so you can bring them up to your loan officer.
Reach out to our team at Homefinity to get started with your refinance loan or fill out an application and we will contact you. We want to help you through this next chapter of your homeowner journey.