How to Refinace a Mortgage
When interest rates start to drop, homeowners wonder about the perks of refinancing. Refinancing allows borrowers to secure a lower interest rate, which reduces monthly payments. Over the life of the loan, a lower interest rate can also significantly reduce financing costs. Evaluating the current mortgage rate and finding the best rate with the lowest fees will assist in minimizing financing costs.
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Instructions
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Review the mortgage statement for the current rate. This rate is typically on the first page of the mortgage statement. When refinancing the loan, try to find a loan rate at least two percentage points lower than the current rate.
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Shop current mortgage rates. Compare rates at Bankrate (see Resources). With this tool, borrowers can enter a credit rating (poor, average or excellent) to get more accurate rate quotes. List lenders with the best rates.
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Contact the current mortgage lender. Present the best rate available. Ask the lender to match the rate. The benefit of refinancing with the existing lender is that the company may offer reduced closing costs. This can save you hundreds, and even thousands, of dollars.
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Contact new lenders. If the current lender can't offer you a favorable interest rate, talk with other lenders. Ask for a fee disclosure, which lists all fees associated with the loan. Negotiate these fees. For example, application fees may be waived.
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Provide loan documentation. After the lender has been chosen, provide supporting documentation for the loan. This may include recent pay stubs, bank statements and proof of other assets (such as retirement accounts). Once the lender receives this documentation, she will start to process the loan.
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Sign mortgage closing documents. Most mortgages fund within 30 to 60 days, depending on your situation. The financial institution will contact you to set up a signing appointment. Documents are usually signed at a bank branch.
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Tips & Warnings
When searching for rates, check credit unions. These financial institutions, which are nonprofit, typically offer low rates and low fees.
Don't forget to read the fine print on the existing mortgage. For example, some mortgages assess pre-payment penalties. This means you will be assessed a fee (such as $500) if the loan is paid off early.
References
Resources
- Photo Credit papers to be signed image by Pix by Marti from Fotolia.com
