Refinancing a home loan is determined by several factors, such as available interest rates, current financial situation, plans for a long-term stay in the home, and penalties of mortgage prepayment. If any of the stated reasons fits your needs, and you have arrived at a decision to start a refinancing process, here are the steps to start the application:
1: Look for the most competitive refinancing rates
In order to get the most of refinancing a home loan, look around for the most competitive mortgage rates. A one percent lower rate than what you are currently paying can give you some savings especially when you still want to stay in the same home.
2: Complete the paperwork
Just like when you first applied for a home loan, refinancing also needs the same personal and financial documents, such as:
- Bank statements
- Pay stubs
- Birth certificate or passport
- Proof of current mortgage payment and terms
- Tax returns
- Home appraisal
- Proof of homeowner’s insurance
3: Review the costs of refinancing
Refinancing also means fee payments, the same as when you applied for your primary mortgage. If you have decided on a lender, discuss the fees involved to get an accurate estimate of the costs. You may decide not to refinance if the fees will be exorbitant. Costs for refinancing would include:
- Underwriting fees
- Other closing fees
- Home appraisal
- Mortgage application fees
- Loan processing fees
The above fees, except for the home appraisal, are only payable on the day you close the deal. On the other hand, the appraisal fee needs to be paid to a professional appraiser as soon as he/she comes to your home.
4: File the application for the mortgage refinance.
Once you have completed all the pertinent documents and have understood all the fees needed in the refinancing process, it’s time to file your application. It may take a month or two for the new loan to be released, just like in your previous primary mortgage. A Good Faith Estimate will be given to you, which will include the official closing costs.
5: The final step: Closing day
Closing day is when all the processing has been completed. This is the point where you will be signing all the paperwork involved in your new loan. The first mortgage will now be covered with a check issued by the bank.
What you need to do now is to stop any automatic payment arrangements that you had on your old loan. Pay close attention to the payment book of the new loan and see if documentation for the full payment of the first mortgage is attached to it. You can ask for that document to keep for record purposes since you still own the house. It will also be an important document if ever you decide to sell your house at a later date.
In almost all ways, refinancing a home loan follows the same process that you went through when you filed for the primary mortgage. If you have any questions regarding some of the processes, feel free to ask your lending bank.