You’ve purchased a home. You’ve lived there for a while, have been diligent with your mortgage payments, and now that you’re sure you’re in it for the long haul, you’re looking for a way to lower those monthly payments. So, you start exploring the kinds of mortgage refinancing programs you can take advantage of.
First off, congratulations! Not only is learning how to refinance your mortgage a great step on its own, but it can also be an exceptional way to lower your interest rates, monthly payments, and pay off your house in record time. But if you’re new to the process, then you may feel like you’re trying to find your way through a hedge maze; you have so many different directions to explore, but very few of them seem to take you where you want to go.
That’s why Poli Mortgage is here to help. No one should feel like they have to manage the refinancing process alone. With the following insights and recommendations, we’ll walk you through the ins-and-outs of mortgage refinancing, how it works, when you should do it, and much more.
Table of Contents:
- What Determines Your Mortgage Refinancing Rates?
- How Much Does it Cost to Refinance?
- What Do You Need to Get Started?
- How Long Does the Refinancing Process Take?
How to Refinance Your Mortgage
When you’re refinancing your mortgage, you’re not buying the house again; instead, you’re applying for a new mortgage that will pay off the original home loan and replace it. Ideally, the new one will also involve you paying less on a month-to-month basis.
Here’s some information to help you navigate through the hows and whys of mortgage refinancing:
What Determines Your Mortgage Refinancing Rates?
When applying for one of the many mortgage refinancing programs out there, the process is going to look very similar to the application you went through for the initial mortgage. Refinancing is a great option to consider, but if your financial situation hasn’t changed much since the original mortgage, then it might not be the best option for you at this time.
With that in mind, the refinancing process should always start with a self-assessment of your current finances, debt conditions, and credit score. This will save you from starting the process in earnest, realizing that you’re not currently equipped for a refinance, and then needing to backtrack after (probably) spending money that you could’ve saved.
If you’ve determined that refinancing is something worth investing in, then you’ll want to know what factors will influence the new mortgage rates you can get. Here are five of the most important factors you’ll want to consider as you calculate your mortgage refinancing rates:
- Credit score (the higher your score the lower your rates)
- Length of the new loan (longer loans entail higher rates)
- Size of the new loan (smaller loans tend to have higher interest rates)
- Loan-to-value ratio (a higher LTV may require mortgage insurance, which will mean paying more)
- The status of the economy (the economy will always have an, often unpredictable, impact on mortgage rates)
How Much Does it Cost to Refinance?
As nice as it would be, mortgage refinancing isn’t free. While it can (and usually will) save you a lot of money in the long run, there are upfront charges that you’ll have to cover to refinance your mortgage.
The cost of refinancing a house involves several factors, and like Investopedia explains, “can cost between 2% and 5% of a loan's principal and—as with an original mortgage—requires an appraisal, title search, and application fees.” While you should be prepared to spend up to 5% of your new loan’s principal to refinance, in most cases, you won’t have to spend much more than 3%.
Here’s an example to help you visualize the cost of refinancing: if the loan you’re refinancing clocks in at $300,000, then the cost of refinancing that loan would cost you between $6,000 and $9,000 in closing costs (which make up the bulk of the upfront fees you’ll need to cover).
Before going through the refinancing process, always make sure that the savings you’ll experience will make up for those upfront costs. If your new rates aren’t that different, then you may pay to refinance and not make that money back, which could mean you don’t save any money at all in the long-term.
If you will earn back those upfront costs, then refinancing may be a great option that you should absolutely explore. Just remember that it can take a few years to recoup the costs of refinancing, so don’t do it unless you’re sure that you’ll be staying in the same place for a while.
What Do You Need to Get Started?
Once you’ve decided that a mortgage refinance is right for you, you’ll want to gather up all of the documentation and information you need for the next steps in the process. This involves things like:
- The current value of your home
- Thirty days of recent pay stubs
- W2 forms from the last two years
- Tax returns from the last two years
- Two months worth of checking and savings account statements
- Multiple forms of ID (driver’s license, social security card, etc.)
- Documentation that verifies any outstanding debt you have
With everything gathered and ready to go, you’ll be all set to find a lender and officially start the mortgage refinancing process.
How Long Does the Refinancing Process Take?
Refinancing usually takes around thirty days to complete (sometimes more, depending on the process of the lender you’re working with) and tends to stick to the same basic steps. You’ll self-assess your situation, gather the documents you need, reach out to several lenders, and apply to their mortgage refinancing programs.
However, when you work with a direct lender like Poli Mortgage you can expedite the refinancing process and see it through to completion in under thirty days. The important thing is to do as much research as you can ahead of time, ask questions when you have them, and be patient with the process; the odds are high that it’ll be worth it.
When Should You Refinance Your Home?
Okay, so you want to refinance your mortgage! That’s great news, but now you have a new question to answer: when should you refinance your home? Should you do it shortly after purchasing a home? A few years after? Halfway into the current term of your loan?
The tricky thing about mortgage refinancing is that there are right and wrong times to do it. To help you make the best choice for yourself, here are a few scenarios in which you should refinance your home mortgage:
When You Want to Change the Type of Mortgage You Have
When you refinance, you’ll typically be extending the amount of time you’ll spend paying off your loan. So, for example, if you’re refinancing your 30-year mortgage with another 30-year mortgage, you’ll be starting over from scratch once the new loan comes into effect. However, if you would benefit from a lower rate, then you can refinance a 30-year mortgage into a 15-year mortgage.
For example, let’s imagine that you bought a home with an adjustable-rate mortgage (ARM) with an introductory interest rate of 3% that expires within the next eighteen months. If you’re planning to stay put in the same house for the foreseeable future, then you might want to consider refinancing to a fixed-rate mortgage so your interest rate won’t fluctuate and end up costing you more than you want to spend.
The alternative can also be true, so if you know you’ll be moving in several years and currently have a fixed-rate mortgage, you might want to look into refinancing so you have an ARM instead. This will give you lower interest rates so you can spend less month-to-month on the current house and start saving up for the new house.
When It Will Save You Money
This should go without saying, but if you won’t actively save money from a refinanced mortgage, don’t do it. If you won’t qualify for a better interest rate, or if changing the type of mortgage you have won’t cut down on the amount you owe, then mortgage refinancing probably isn’t the right choice for you right now.
Take a look at this example from Investopedia to see a helpful illustration of the amount of money you can save by refinancing: “a 30-year fixed-rate mortgage with an interest rate of 9% on a $100,000 home has a principal and interest payment of $804.62. That same loan at 4.5% reduces your payment to $506.69.” If you can secure a better rate on your mortgage by refinancing, and you don’t plan on moving in the near future, then you could stand to save a lot of money.
Even getting a 2% decrease in your interest rate can make refinancing worthwhile, as the savings will gradually stack up and can result in an impressive amount of savings in the long run.
Refinancing with Poli Mortgage
If you’re ready to kickstart the refinancing process and start saving money on your mortgage, then get in touch with Poli Mortgage today! Our team of expert loan officers will answer any questions you have, help you get the ball rolling, and then walk you through our easy-to-navigate online application.
Our refinancing program requires very little preparation beforehand and, if you’re looking to avoid closing costs, we have options for that as well! We’re here to help you get the lowest interest rates possible and will do everything we can to set you up with a mortgage refinancing program that meets your needs and saves you money.