STEP 1: DO THE MATH When refinancing, the biggest factor in determining whether refinancing makes financial sense is the difference between the interest rate on your current loan and what a new lender will offer you.
The math is pretty simple. The refinanced loan amount divided by the new interest rate equals your monthly savings. For example, if you are refinancing a $200,000 mortgage with an interest rate of 6.125% and the refinancing lender is offering a rate of 4.50%, your monthly savings will be $131.43, or $1,650 annually (assuming a 30-year loan with even monthly payments). If you plan on living in your home for the long term, refinancing to lower your interest rate can more than pay for itself.
STEP 2: CHOOSE A LENDER The refinancing process includes choosing a new lender – not just any lender with the lowest advertised rate. You want to choose a lender who will work with you throughout the refinancing process. You should also explore working with a mortgage broker to save you time when shopping for the best mortgage products available.
STEP 3: GATHER YOUR DOCUMENTS You will need to gather several documents when refinancing. These include a copy of your identification, your most recent pay stubs or tax returns, and any other documentation related to your earnings and assets. There are also several legal documents you will need to have prepared by a lawyer.
STEP 4: REFINANCE YOUR LOAN The refinancing process also involves refinancing your loan with the new lender. This will take a couple of weeks to complete, during which time you will be expected to continue making payments on your previous mortgage.
STEP 5: CLOSE THE LOAN Once refinancing is complete, you will have to sign a new mortgage agreement with the lender and have your new mortgage registered against the title to your property. Your old mortgage will be discharged off of title. Your lender will also notify your previous lender of the refinance. And you're done! You now have one simple monthly mortgage payment instead of two.
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Sarah A. Colucci, Senior Mortgage Agent
Mortgage Edge, Broker 10680/Direct: 647-773-4849
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929