Want to reduce your monthly mortgage payments or get a lower rate of interest? You could consider refinancing your home loan or any other mortgage. Let us take a quick look at the refinancing process, its pros and cons, and how it works.
What is Refinancing?
Refinancing is when you replace an existing mortgage with a new loan. Usually, individuals opt for refinancing in order to cut down on their monthly payments or opt for a new loan due to lower interest rates or change in the loan tenure from maybe 30 years to 15 years. Additionally, those who need access to cash to pay off other debts or for home renovation opt for refinancing.
How Does Refinancing Work?
Regardless of your purpose, the refinancing process works almost in the same manner as it does in the first mortgage. You will have to go through the same procedure that involves taking out time to look for loan options, putting together various financial documents, and submitting your refinancing application.
Know the Complete Process of Refinancing
Step 1: Set Your Refinancing Goal
It is imperative to set your goal to figure out what sort of benefits you are seeking from a mortgage refinance, and what type of loan will help you save money. Ask yourself: what is your primary purpose for refinancing a mortgage? Do you want to immediately save money by lowering your monthly payment? Do you want to cash out your home equity? Or is it for any other personal reason? The right refinancing approach and strategy will help you reach your goal easily.
Step 2: Look For Several Lenders and Refinance Rates
Once you have set your goal, the next step is to look for lenders and get your new mortgage quotes from them. You must know that refinance rates can significantly vary from lender to lender. In addition to the rates themselves, you also want to ensure that the lender you’re working with is knowledgeable and personable. Don’t get stuck working with someone who is dismissive of your concerns! Our team of experts at Harborside Home Loans is friendly and professional. We’ll make sure you understand everything at every step of the refinancing process!
Step 3: Compare Fees and Charges
To ensure that you are getting the best deal, it is imperative that you compare the fees and charges of refinancing rates. You must obtain multiple mortgage quotes from various lenders. Also, remember to check whether there are any penalties relating to prepayment.
Step 4: Documentation
Now that you have decided what type of refinance loan you are opting for and have also chosen your lender, it’s time to take the next step. Complete your loan application by organizing all the paperwork and submitting the required documents.
Step 5: Appraisal and Underwriting
Once documents are submitted, the underwriting process of your loan will begin. Your lender will verify all the information related to your mortgage application and the supporting documents to ensure you have adhered to all the guidelines. This entire process takes approximately two to three weeks.
Appraisal, on the other hand, is the market value of your mortgage, which is determined by a licensed appraiser. Basically, they compare your property with the existing properties in your area and give an unbiased opinion of your home value.
Step 6: Close your Application
The last stage of refinancing a mortgage is to close your new loan. A closing disclosure will be shared with you by your lender. This will include all the important information and the costs associated with the loan. Review your new loan terms and conditions carefully, and sign the documents.
Tip: In order to speed up your refinancing process, you must organize all the requisite documents beforehand. Look for a lender who delivers on time, and stay in constant touch with your underwriter/loan officer.
Pros and Cons of Refinancing a Mortgage
Pros of Refinancing a Mortgage
Chances of Locking in a Lower Interest Rate
There is a high probability that you will be able to lock in a lower interest rate due to a change in the interest rates on your initial home loan. This will also lead to smaller monthly payments and better finances.
Shorter Loan Term Helps in Saving More Money
You will be paying more interest on a 30-year tenure of your loan. However, when you go for refinancing a loan when the interest rates are low, it not only helps you to switch to a comparatively shorter tenure, but also helps you save some extra money on your interest.
Cons of Refinancing a Mortgage
Your Savings May Be Minimal Depending on Current Interest Rates
You may not be able to see a prominent change in the interest rate or monthly payments if your financial situation has not changed since you took the first loan. Hence, it is important to evaluate how much your pocket allows you to spend versus how much money you will save.
Refinancing Is a Time-Consuming Process
Refinancing is a tedious process as it takes a lot of time, resources, and money to avail a lower interest rate. In most cases, the refinancing process usually closes within 30-45 days of application, but that also depends on the lender.
Refinancing your home is a big decision that can have big advantages for you. If you’re considering refinancing your home, be sure to carefully go over all of the factors involved to ensure that it’s the right decision. When you’re ready to make the decision, check out Harborside Home Loans! Our first-class team offers a first-rate experience to ensure that you are comfortable with the process from beginning to end. We offer unparalleled home loan programs at competitive rates. Get in touch with us today to learn more about out home loans and how you can benefit from refinancing!