Mortgage Refinancing (Continue...)


The Refinancing Process

The process of refinancing your home is very similar to the process of getting a first mortgage. Visit our Banking on a Mortgage section to review information about the loan process.

Getting Started

1.   Just like when you obtained your first mortgage, Information gathering is the first step towards refinancing. The rest of the process is fairly similar as well.

2.   Talk to mortgage professionals and institutions that offer mortgages.

3.   Look at current interest rates.

4.   Consider different refinancing options. Loan products can vary by:
Interest rate
Number of points
Term
Additional costs

5.   Decide on the refinancing plan you want

6.   Get the necessary paperwork completed

While shopping for different mortgage plans, it's a good idea to keep track of the different options available to you.

Other Options :

When it comes to refinancing, there are often more options available than with a first mortgage, such as cash-out refinancing and prepayment penalty mortgages.

Cash-Out Refinancing

Cash-out refinancing is when the amount of your new loan is greater than the amount you owe on your current mortgage. The rest of the amount you borrow comes from the equity in your home and can be converted into cash.
This option may be attractive to you if you're considering making a major purchase or want to use the money to pay for your child's education. If your interest rate increases when you get a cash-out mortgage, you may be able to deduct more interest from your taxes. Be sure to weigh the pros and cons of tapping into your home's equity. If you're interested in cash-out refinancing, talk to a mortgage professional.

Prepayment Penalty Mortgage (PPM)

When searching for a first mortgage, many potential homebuyers do not get a mortgage with a prepayment penalty clause.
However, a prepayment penalty mortgage may be attractive to some homeowners. Mortgages with prepayment penalties may have reduced fees or lower interest rates. Accepting a lower interest rate may make sense to you if you do not expect to prepay the loan and think that you only want to refinance once.

Mortgage Types

The type of mortgage you currently have can affect the refinancing plan you choose. You may want to look at our Banking Section for in-depth information on certain types of mortgages.

Balloon / Reset Mortgages

Balloon/Reset mortgages must either be repaid or refinanced when the term ends (usually after 5 - 7 years). Homeowners rarely refinance into a balloon mortgage because it requires a large amount of money to be paid at once after a short period of time. However, it may make sense to refinance into a balloon mortgage if you know a large amount of money will be available to you in the near future.

Adjustable-Rate Mortgage (ARMs)

The interest rate for adjustable-rate mortgages changes based on current financial conditions. If you currently have an ARM, you may want to refinance with an ARM that has a lower initial interest rate or better features (such as a lower maximum monthly payment or a reduced cap on the amount the interest rate can change). You may want to refinance, taking advantage of a lower initial interest rate if you have an ARM where the initial period is ending (i.e. the rate may change soon). Even if you do not have an ARM, you may want to refinance with an ARM if you want to capitalize on a lower initial interest rate and/or you anticipate mortgage rates dropping.

Fixed-Rate Loans

Fixed-rate loans are very popular for refinancing. Many homeowners like the certainty of fixed monthly mortgage payments. In addition, fixed-rate loans protect against inflation. If interest rates have dropped since you got your first mortgage, refinancing with a fixed-rate loan can be a good way to take advantage of the change.

Talk to a mortgage professional to find out which loan is best for you.

Refinancing & Lenders

When seeking to refinance, the best place to begin is often your original lender. They may offer you special discounts or waive certain fees in order to keep your business. You can also check with mortgage banking companies, commercial banks, community banks, credit unions and other financial institutions. Mortgage brokers may be a source of information about different mortgage products available from a variety of sources.
Other sources, such as real estate professionals, family members, friends and coworkers may also be able to help you research your options.

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