What Does Mortgage Refinance Mean?
A mortgage refinance occurs when a homeowner gets a new mortgage loan to pay off the existing mortgage loan. Mortgage refinancing can be a long and difficult process so it's important to make sure you like and trust the lender you are working with.
It's also important to remember that when you decide it's time to refinance your mortgage, it's a great idea to shop around and talk to different lenders in your area. You never want to settle for the first quote you receive as you will normally be able to find something better. It is possible to utilize a mortgage broker to help with rate shopping also.
Why Get a Mortgage Refinance?
There are many reasons homebuyers decide to refinance their homes.
Those reasons can include:
- Lower interest rate
- Lower monthly payments
- Change loan term
- Change loan type
- Cash-out home equity
- Eliminate mortgage insurance
How Does a Mortgage Refinance Work?
The first step to a mortgage refinance is typically shopping around for new rates and term quotes. You can do this on your own or you can utilize a mortgage broker. You'll need to find and pick new rate terms that you like and benefit from. Once you pick those and get approved for the refinancing, it would be time to move forward with your lender. Your lender will usually want to look into three main areas of your financial history:
- Credit score and history
- Income and employment
Depending on the value of your home and your lender's requirements, your home may need to be appraised again.
Just like when you first bought your home, there is a lot of documentation involved. However, there is slightly less with a mortgage refinance than the initial purchase.
Lenders will need the following for a mortgage refinance:
- Recent pay stubs
- Bank statements
- Current mortgage statement
- Proof of citizenship
After all the documentation is complete and you get your rate locked in, your lender will send everything to an underwriter where they will assess everything. Once everything is assessed and sent back to your lender, it is time to close on your mortgage refinance.
The closing will be very similar to when you purchased your home, the difference being you already own the home.
Do You Have to Refinance Through a Mortgage Lender?
Refinancing through a typical mortgage lender, like a bank, is not required. However, it would most likely be the safest route. You are also able to go through a private mortgage lender.
This is the way some homebuyers have to go if they have trouble getting loans through a usual mortgage lender due to reasons like their credit score or income.
Do You Have to Utilize a Mortgage Broker?
Utilizing a mortgage broker is the decision of the homebuyer. Mortgage brokers are professionals who will work to find you the best rate and terms that they are able to. This means you would not be in charge of doing the rate shopping. However, it is important that you trust your mortgage broker has your best interests in mind when shopping around.
When it comes to paying the mortgage broker, this can be done either by you or by the lender themselves. This is important to figure out before working with a broker if you do not want to be responsible for compensating them. There are times homebuyers get slapped with broker fees because they didn't think to inquire about the fees beforehand.Share