Many Homeowners Ignore Refinancing Benefits Due To Confusion
Refinancing is an important tool for the savvy homeowner, as it can offer a host of benefits. Unfortunately, research shows many view the process as confusing and choose to put off looking into it. Although refinancing does require several steps, it doesn’t have to be daunting. And for many homeowners, a refinance can mean lower monthly payments, a speedier payoff – or even both.
To begin the refinance discussion, talk with your lender. First, you’ll want to ask whether there are any up-front fees. Most refinances come at a cost of several thousand dollars, so you’ll want to ensure that your refinanced monthly payment savings will offset that up-front cost over time. Your lender should be able to provide you with a cost-benefit analysis that takes into account the time remaining on your current loan, the size of your loan and the new mortgage rate you qualify for. If the math doesn’t work in your favor, it’s probably not the right time to refinance. This is no problem, as you always retain the right simply keep your current loan terms.
If you choose to move forward with a refinance, it will require a standard mortgage application, just like your original home loan. Your lender will explain the loan options available to you, and once you choose you’ll be required to provide financial documentation. Typically, this includes bank statements and recent pay stubs.
After you have completed the application, your lender starts the mortgage underwriting process. The lending company will evaluate your financial health to decide whether to assume the risk of your new loan. If you’re approved, the closing process will begin. Similar to your original home purchase, this refinance closing process will ensure your new loan is applied to pay off the old one, and your new loan will become active. At this point, your monthly payments will now be applied to your new loan according to the new terms.
Image via Flickr/mattrobinson