How to Refinance an Interest Only Loan

An interest only loan can be a great program if you are just starting out and want to keep your payments low. However, eventually you will want to start making payments against your principle and/or avoid making payments at a higher rate if your loan is about to adjust. There are very specific steps that must be taken to refinance and it is important to be on top of things so that you don't run into any problems.

Things You'll Need

• Paycheck Bank statement License Social security card W2 forms Mortgage statement Tax bill Insurance Policy Cashier's check

Instructions

1. Contact a loan officer and let him know that you are interested in refinancing your loan. Ask the officer about the different options you have for a new loan and decide the type you would like. A 30-year fixed loan is a good choice if you do not want to worry about an adjustable rate. Provide the officer with your basic information, including your name, address and social security number. You will also have to answer some basic questions about your income and assets to get the process rolling. Additionally, you must give the loan officer permission to pull up your credit score and run numbers on your debt/income ratio.

2. Set-up a meeting with your loan officer once she informs you that she has secured all the necessary information regarding a new loan. The loan officer will review a new loan with you and your new payment. Switching from paying interest only to paying principle will likely increase your monthly payment, so make sure you can afford the payment and understand the conditions of your new loan. Once you have reviewed your new payment, decide whether you want to pay your closing costs at your closing or have them added to your loan amount.

3. Gather the necessary materials for your loan approval. The loan officer will need 1 month of pay checks, 2 months of bank statements, any investment statements, copies of your license and social security card, your current mortgage statement, W2 forms, tax bill (if your taxes are not escrowed), insurance policy and original note. The loan officer will use these materials to get your loan approved by the bank.

4. Attend your closing once your loan has been approved. Bring your license and a cashier's check for closing costs and any other monies you owe. Sign all the necessary documents to finalize your new loan.

Tips & Warnings

• You have 3 days to cancel your transaction if you change your mind for any reason.