There’s been a lot of discussion recently about mortgage rates. Since the economy was tied up with the uncertainty of Covid, the mortgage rates have been a topic of conversation among homeowners closely monitoring their rise and fall. And yet, many homeowners are not sure whether a refinance is the right choice for them.
So what is the process? How does it work? And is it right for you?
Let’s take a close look.
What is a Mortgage Refinance?
A refinance is a way to take out a new loan in order to pay off your original loan. It sounds simple, but there are financial considerations and implications you should consider.
One of the main things to remember is that a refinance tends to mean lower rates over the long run, but does have some upfront costs. Refinance offers often fail to highlight this aspect of the refinance process, which should be considered as a major factor when weighing the options.
The rates have been somewhat unpredictable and—in some cases—surprisingly low since the pandemic started. As inflation and supply chains continue to play a role in the economic conversation, the rates have continued to hold strong.
However, experts suggest that as the Federal Reserve tightens monetary policy, that number is likely to rise later this year. According to the Wall Street Journal, the rates continue low for now and the conflict in Ukraine is just another unpredictable event that has affected them.
What is the Refinancing Process Like?
Overall, the process is not overly complicated. While the timeline varies from lender to lender, you can expect a 30-45-day process. Just like when buying a home, there is a qualifying process before you can refinance. Here is a short overview of what the process might look like:
Step #1: Identify your goals
Before going forward with the process, you want to weigh your options and consider the possible benefits. Be clear about your financial goals to have a clear picture of what you’re facing. We detail some of these questions below.
Step #2: Shop around
Like every other major purchase, you want to get your mortgage quotes. Talking to different lenders gives you a bigger picture of where the rates are. When shopping around, you should consider the refinance rates but also the refinance closing costs.
Different loan types—VA loans, conventional loans, or FHA loans—will have varying refinance rates.
Step #3: Carefully compare the rates and fees.
The lenders you visit for a refinance estimate or loan estimates (LEs) can provide you with a printout of the refinance quote. This document will outline the refinance costs, origination fees, and a Comparisons chart, which shows a breakdown of future payments.
Step #4: Submit your documents.
Once you have found the right lender and the right refinance loan, you can complete your loan application and submit the necessary documents. Closing on your loan in good time is important because of the rate lock. If your rate expires before you have everything submitted, it may affect the final rate.
Documents that might be necessary for a refinance loan include:
- Pay stubs that span the last 30 days
- Bank statements from the last 2-3 months
- Any tax forms that include W2s or 1099s from the past two years
- The past two years’ tax returns
- Any statements that show your assets for the last 60 days
- Proof that you have homeowners insurance
Step #5: The appraisal and underwriting
This is a similar process to when you first purchased your home. The lender needs to order a new appraisal to verify the current value of the home. Then, the underwriter reviews the documents, ensures everything is valid and accurate, and will offer the final approval of the loan.
Step #6: Closing the deal
Once everything is approved, you will receive a Closing Disclosure from your lender. The document will disclose the final numbers for your loan. By law, you have 3 days to cancel this if for some reason you change your mind. This is called the right of rescission, in which people are offered 3 days to go back on everything if they feel it necessary.
Why Would You Want to Refinance and What are the Benefits?
Refinancing might be convenient for a variety of reasons, but it might not be a smart strategy for everyone. Be wary of some of the common refinancing myths that give people the wrong impression. For the most part, however, it can be a smart move for many homeowners.
Here are some reasons that might indicate a refinance is right for you:
You want to change the loan term
Sometimes people choose to refinance to shift their original loan term from, say, a 30-year loan to a 15-year loan. This saves people interest in the long haul as well. If your finances have changed, for example, and you want to lower your mortgage payment, you can also refinance to lengthen the loan term.
You want to lower your payment
Perhaps the most common reason people cite for going through a refinance is to lower their payments. If mortgage rates are low, it may mean you get a lower interest rate, which in turn lowers your monthly payment.
You want to change your loan type
In some circumstances, changing your loan type might be beneficial. This might be the case if you had originally applied to an adjustable-rate loan and now want to move to a fixed-rate loan.
You need the cash
If you have built equity on your home, you might be able to cash out a portion to help pay for a home improvement project, medical bills, or other pressing expenses.
You have the closing cash at hand
Remember that refinancing requires some closing costs. You don’t want to empty out your savings without thinking through it. If you have saved some money and have the cash in hand, it will make the process easier.
Have More Questions About a Mortgage Refinance in El Paso? Talk to a Mortgage Rate Expert.
If you’re considering a refinance, you want to consider all the options and costs. The state of mortgage rates and the economy can get a little complicated. Rocky Mountain Mortgage is here to help El Paso homeowners get the most accurate information and quality advice.
Call our team at Rocky Mountain Mortgage Company today.