REFINANCING

WHAT TO LOOK FOR:

When you’re shopping around for a refinancing option, you will want to make sure you’re investing in the best option for your needs and circumstances. There are several factors to take into consideration when choosing a mortgage loan, including:

Your financial situation.
Desired loan term and type.
Loan costs and fees.

The ultimate goal of a home-refinance is to lower your monthly payments and overall interest rates. While it may be tempting to purchase a 30-year fixed-rate mortgage refinance, doing so will mean paying more interest over the life of the loan.

 
 THE COST:

When you decide to refinance your mortgage, you will need to pay closing costs on the property. Closing costs typically make up between 1 and 5 percent of the total loan amount. This cost is comprised of the following fees:

Loan application fee
Home appraisal
Origination fees
Title search fee
Document fee
Recording fee

Often, lenders will request additional expenses, including a home inspection fee, a flood certification if the property is situated in the flood zone, and an attorney’s costs to review all documentation. You’ll want to reach a breakeven point, the time it takes to reduce your monthly costs to make up for the costs associated with refinancing a mortgage. For a refinance to be worth the investment, you shouldn’t plan on selling the home before reaching this breakeven point. Here’s a simple equation to help you figure out how long it will take to get to this breakeven point:

Closing costs ÷ Monthly savings = Amount of months to break even

If, for instance, the closing costs are $3,000, and you can expect to save $150 each month, it will take you 20 months to break even on the cost of your refinance – since 3,000 ÷ 150 = 20.

  

THE PROCESS:

Once you’ve decided you’re ready to refinance, it’s time to begin the application process. Credit scores are one of the main factors mortgage lenders consider when evaluating borrowers for home loans. Before you start the process of refinancing your home loan, you should check your credit history to make sure there are no inaccuracies you will need to report. Also, make sure you are up to date on monthly fees associated with your credit cards. Once you have found the right lender and loan, you will need to complete the loan application. You may need to share the following information with your lender during this time:

Current pay stub
W2s from the past two years
Recent tax returns
Bank account statements
Proof of homeowners insurance
Most recent mortgage statement