What is a Mortgage Refinance?
When you refinance your mortgage, you exchange your current loan for a new one, typically with a new principal and interest rate. The new mortgage is used by the lender to pay off the old one, leaving you with just one loan and one payment per month.
In today’s market, home owners refinance for a variety of reasons. You can refinance your mortgage to access the equity in your home, or you can refinance to improve your interest rate and/or payment terms. One possible use of a mortgage refinance is to remove a co-signer from the loan, as is common during a divorce. Someone else can be added to the mortgage as well.
Many of the same steps are involved in both the buying of a home and refinancing of that home, but the refinancing process is typically simpler. Your refinancing could take anywhere from 30 to 45 days, but that range is pretty standard. If you work with a local mortgage expert, your refinancing may take less than 30 days.
The Mortgage Refinance Application Process
To apply for a refinancing, you’ll need to provide the same information that was provided to your original lender (or lenders) when you purchased the house. Your ability to repay the loan and meet the terms of the refinancing will be determined by analyzing your income, assets, debt, and credit score.
You may need to provide your lender with the following documents:
- Latest two pay stubs
- Latest two W-2s
- Bank statements from the past two months
If you’re married and live in a community property state, your lender may also request proof of your spouse’s income and identification (regardless of whether your spouse is on the loan). Extra proof of income may be required if you’re self-employed. You should also bring your tax returns from the past two years.
You can stay with your current lender and not refinance. The loan you already have with one lender is paid off by the new lender when you switch. Don’t be afraid to look around at different mortgage lenders to see who offers the best rate, terms, and customer service.
Shopping Around for Refinance Rates
If you want to shop around for the best mortgage rate and terms, it’s a good idea to get preapproved with more than one lender. By doing so, you’ll increase your odds of discovering the most advantageous deal.
You should compare the terms of the mortgage loan you currently have with those of the refinance offers you are considering. This can be a useful indicator of whether or not a refinancing would be beneficial.
Reasons why People Refinance Mortgages
Better Interest Rates and Lower Payments
You could save money on interest with a lower rate and monthly payment if your credit has improved or if market rates have dropped since you first got your loan. There is a loan product available to you called a rate-and-term refinance that will allow you to accomplish this. Refinancing could be beneficial if current interest rates are lower than those of your original loan. It is possible to reduce your payment schedule by lowering your interest rate. Over the course of the loan, you will probably pay less interest.
Change the Term of Your Loan
A popular strategy for reducing monthly payments and saving money on interest is to refinance to a shorter term. Let’s say you took out a 30-year loan but have since realized you can comfortably afford a higher monthly payment on your home. To save money on interest over the long run, you could consider refinancing to a 20-year term at a lower interest rate. Refinancing your mortgage with a new rate and term can help you save money by reducing the total amount of interest you pay over the life of the loan. However, this strategy typically results in higher monthly payments but lower interest costs over the loan’s lifetime. You may be able to reduce your monthly payment by extending the length of your loan.
Convert Equity to Cash
With a cash-out refinance, homeowners can access a portion of their home’s equity. For example, homeowners may do this to pay off high-interest credit cards, make a major purchase, invest, or even buy out a former spouse in a divorce.
During a cash-out refinance, the homeowner takes out a loan for an amount greater than the amount currently owed on the home. The ability to borrow against the appreciation in your home’s value could mean that you can use the funds for anything from major home repairs to paying off credit card debt.
A home equity loan typically has a much more reasonable interest rate than any other type of loan that you could qualify for. There may be tax consequences if you take cash out of your refinance.
Negatives to Refinancing a Mortgage
- Interest rates may have risen since the original mortgage
- Closing Costs
- Monthly mortgage payment could increase
- New application and hard inquiries could impact your credit score
- The Loan essentially starts over
Refinancing Your Mortgage in Jacksonville, FL
Now may be the right time to refinance and potentially save hundreds of dollars each month! Our Jacksonville, FL Mortgage lenders are ready to help you explore your options today. Refinancing your mortgage could:
- Lower your monthly mortgage payment
- Lower your interest rate
- Eliminate Private Mortgage Insurance (P.M.I.)
- Lower your loan term to pay off your mortgage faster
- Turn home equity into cash for home improvements
- Pay off or consolidate debts
Our RefiNow program could help you take advantage of low interest rates, even with little or no equity in your loan.
Contact Bayway Mortgage Lenders today to get your refinance process started!