How To Refinance A Mortgage

Here’s a short tutorial on when and how to refinance a mortgage and the costs involved.

What is Mortgage Refinance?

Mortgage refinancing is the replacement of an old mortgage with a new one in which the lender has provided more favorable terms. For example:

The existing mortgage has a principal of $100,000 and a 5.5% interest rate. If your credit score improves in two-and-a-half years, a lender may allow you to refinance the mortgage at a lower interest rate, like 4%. In that case, if you had a mortgage balance of $95,700 after 2.5 years, a lender could allow you to refinance the mortgage by starting your repayments afresh for a 30-year loan plan. That would save you about $100 every month.

Why Do People Opt for Mortgage Refinance?

A decision to refinance a mortgage should be made only after self-evaluation of personal finances. If you have a challenge making the decision, it’s advisable to seek the help of a financial advisor or expert. Here are a few reasons why people opt for mortgage refinancing.

  1. Lower Interest Rates

If your credit rating has improved and you can repay your mortgage at a lower interest rate, then a refinancing decision could be appropriate because it will save you some money.

  1. Mortgage Consolidation

Sound financial decisions result from streamlining your finances. One way to do that is by consolidating high-interest loans. This reduces the number of interest-bearing loans you have to pay, lowering the chances of late payments.

  1. Elimination of Mortgage Insurance

Mortgage insurance is expensive and only protects the mortgagee and not you as the borrower. If an opportunity exists to eliminate the insurance through refinancing, it is best to take it. Doing away with mortgage insurance could save you a lot of money.

  1. Unlock Home Equity

Refinancing is one way to tap your home equity. This technique is can be used to avoid signing up for high-interest personal or vehicle loans.

How to Refinance a Mortgage

When you decide to refinance a mortgage, there are several steps to follow. Here are some must-follow steps that can help guarantee positive results:

Step 1: Have a clear financial goal.

Financial decisions such as refinancing must have a concrete goal. It’s important you establish what you want to achieve from your mortgage refinance. It could be a lower interest rate, alteration of a payment period, debt consolidation, etc. The bottom line is that you need a clear goal.

Step 2: Know your current credit score and history

One of the items to help you make a refinancing decision is your credit score and how it has varied over time. A good credit score means you can qualify for a lower interest rate and could eliminate insurance costs. A bad or low credit score means the interest rates could be higher.

Step 3: Determine your home equity

If you have enough home equity, you should be eligible for refinancing your home mortgage. Home equity is a key determinant of your loan-to-value ratio that lenders use to restructure your mortgage for refinancing.

Step 4: Window for the best refinancing lenders

It’s advisable that you compare several refinancing mortgage lenders to have the best deal that favors you as the borrower. Consider things such as interest rates, closing costs, and other charges involved.

Step 5: Prepare your paperwork

Before asking for refinancing, ensure you have all the necessary documentation. This will make it easier and faster for the lender to assess you and qualify you for refinancing.

Step 6: Get ready for a home appraisal

Lenders want a professional opinion on the actual value of your home to know the amount of money you can borrow, It is common for lenders to bring in their professional valuer to assess your home’s worth. It’s important to be ready for this inspection.

Step 7: Close on the loan

When seeking a mortgage refinance, come ready to settle the closing costs. In most cases, they range from 2% to 5% of the loan amount involved. Be sure how the lender wants the money paid before making plans.

How Much Does it Cost to Refinance a Mortgage in 2023?

The mortgage refinancing rates are based on the years you are required to repay the loan. For the year 2023, the average fixed rate for the various mortgage refinancing options are as tabulated below.

30-Year Fixed-Rate Mortgage Refinancing6.70%
20-Year Fixed-Rate Mortgage Refinancing6.93%
15-Year Fixed-Rate Mortgage Refinancing6.19%
10-Year Fixed-Rate Mortgage Refinancing6.36%
5-Year Fixed-Rate Mortgage Refinancing5.39%

How Long Does it Take to Refinance a Mortgage?

On average, refinancing a mortgage typically takes between 30 and 40 days. It’s hard to give an exact estimate since services such as inspections and appraisals that third parties provide could take longer or shorter periods. It all depends on who is involved in the process and how long it will take them to complete each task.

How Easy is it to Refinance a Mortgage?

Although the refinancing process uses the same process as buying a home using a mortgage for the first time, it’s not as complicated. That’s because most of the analysis and paperwork was already done and what remains is minimal. Nevertheless, the refinancing process’s complexity will differ per case basis. Some are easier than others. Some of the ways you could make mortgage refinancing easy include:

  • Credit score optimization
  • Selection of the lender with the best terms
  • Increase home equity
  • Keeping a tab on your property value

How Hard Is It To Refinance A Mortgage?

Generally, refinancing a mortgage is simple if you have the correct documents, apply the proper process, and use a recommended mortgage calculator. In the absence of these things, you will face some difficulties getting a mortgage refinancing. A few things that would make your mortgage refinancing process difficult include:

  • Poor credit score report or absence of the report
  • Failure to follow the right process
  • Absence of a professional valuer report/appraisal on your home equity
  • Lack of other necessary documents

How Expensive Is It To Refinance A Mortgage?

Homeowners pay about 2% to 3% of a loan amount when seeking to refinance a mortgage. The costs are payable before closing. Besides that amount, other charges may be incurred, such as insurance costs, points, and others, depending on the refinancing you want. Fees also vary depending on the lender you select for your mortgage refinancing.

How to Refinance My Mortgage with a Different Bank

Many people ask whether they can refinance with a different lender from the original. The truth is that this is a choice for the borrower. You can refinance your mortgage with a different lender if you wish.

One benefit of refinancing with a different lender is that no waiting time is required. That’s unlike when refinancing with the same lender, where you could be required to wait for six months. Here are a few steps to follow when refinancing a mortgage with a different lender:

Step 1: Check your credit score and history report

It’s important you know whether you qualify for refinancing. There could be errors in your credit report, which you may need to rectify before asking for a mortgage refinance.

Step 2: Put together data on your refinancing transactions.

This may include filing together documents such as 6 months of bank statements, current mortgage details, recent pay stubs, home insurance policy, home equity value, and 2 years of tax returns.

Step 3: Shop for appropriate lenders

Ensure you contact several banks and lenders to compare the terms and select the one that best serves your interests.

Step 4: Compare your refinancing options

After selecting your lender, it’s time to consider the refinancing options. Check on things such as fees charged, interest rates, and loan terms.

Step 5: Apply for your mortgage refinance

The application for refinancing could be online or in-person, depending on the lender and your preferences. Remember to provide details such as current income, liabilities, assets, and any other relevant data requested. Also, consider making follow-ups to get an update on the loan refinancing as it progresses.

Step 6: Close the process

Closing a mortgage refinance is the last step in the process. You can seek assistance from an attorney to review the documents for security and understanding. When certain they are okay, you’ll sign the forms. Ensure you settle all the required fees before closing.

Need Help Repairing Your Credit?

The Credit Pros is a top-rated credit repair company with thousands of 5-star reviews from satisfied customers. Use this link to get in touch with The Credit Pros to schedule a free, no-obligation consultation to see if they can help you repair your credit and increase your credit score.

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