How to Refinance a Home Loan

Refinance Your Home

The process of refinancing your home loan can be relatively simple if you have stellar credit and ample equity available. Things get a little more difficult if you have credit problems or if the amount of money you owe is close to the amount of money your home is worth. Refinancing can save homeowners a large amount of money if the refinance is to obtain a substantially lower interest rate, but applicants need to keep in mind that there will be closing costs involved with a home refinance.

Instructions

How to Refinance a Home Loan

1. Check your credit. If you have any errors on your credit report you need to get them removed before you apply for the refinance. A home loan refinance is just like any other form of credit and will involve a review of your credit history, even if you refinance through your existing mortgage lender. You should also review your credit report for delinquent accounts because these accounts will result in a higher interest rate for the refinance loan if you don't take care of them before applying.

2. Find out the market value of your home versus the amount you owe. You are not likely to find an acceptable mortgage refinance loan if you owe more than your home is worth. You will also encounter higher interest rates and less desirable loan terms if you don't have some equity built up on the home. The value of your home isn't how much you think it's worth. Instead, it's an estimation based on what buyers would actually pay for your home. Contact a local real estate agent for a market value analysis of your home.

3. Research interest rates. Don't assume that your current lender has the best interest rates available. Check with several mortgage lenders or utilize the services of a mortgage broker to find the lowest interest rates with the best terms and lowest closing costs.

4. Contact your preferred lender and apply for the refinance. Most lenders will accept applications online, over the phone or in person at a local branch. You will need to provide a variety of information regarding your current financial status as well as information regarding the home you want to refinance. Additional documentation may be needed if you have special circumstances, such as a lien-hold or if you have a second mortgage on the home.

5. Decide on the product you want. The representative from the mortgage lender will discuss the various options with you. Carefully consider each option, such as fixed-rate versus adjustable, cash-out refinancing and other options. Never obtain a mortgage refinance that you don't fully understand.

Tips & Warnings

• A tax assessment can give you a vague idea of the market value of your home, but the amount usually isn't as high as the actual market value.

• Unless you have a real need to refinance for other reasons, don't refinance a mortgage unless you receive at least a 2 percent discount in the interest rate.

Resources

• How to Get a Low Rate on a Mortgage