The Mortgage Refinance Process
Prepare for the steps and paperwork associated with mortgage refinancing
Deciding to refinance a home loan is a big decision influenced by many factors including your financial situation, mortgage prepayment penalties on your current loan, available interest rates and your long-term plans for staying in the home. Once you've evaluated the reasons why a mortgage refinance makes sense for your situation, and you've decided to start the process, take some time to familiarize yourself with the steps involved.
1. Compare mortgage rates for refinancing
In order to ensure that refinancing your home loan makes financial sense, you should first look for the most competitive mortgage rates. As long as you plan to stay in your home for many years, refinancing to a mortgage rate that's at least one percent lower than your current rate can spell savings. If you find that mortgage rates for refinancing are the same as your current rate, higher than your current rate or just a fraction of a percentage lower, it's not a smart decision as you still have to pay fees and closing costs for the refinance. That upfront cost won't be justified if your payments don't diminish enough because you won't make the money back. Use this refinance breakeven calculator to see how long you have to stay in the home and how much the rate needs to decrease to make it worth it. Then, sign up for the Rate Watch service so you know when that rate becomes available.
2. Gather the necessary paperwork
When you applied for your first mortgage, you had to provide many financial and personal documents. When you refinance your home loan, you'll have to present many of the same materials plus documents related to your current mortgage, including:
- Pay stubs
- Tax returns
- Bank statements
- Proof of homeowner's insurance
- Proof of current mortgage payment and terms
- Birth certificate or passport
- Home appraisal
3. Get an estimate of mortgage refinancing costs
Refinancing your mortgage also has accompanying fees just like a primary mortgage. Be sure you talk to your lender to get an accurate picture of these costs. If they seem extremely high, that may influence your decision to refinance. Some of the costs associated with this process include:
- Home appraisal
- Loan processing fees
- Underwriting fees
- Mortgage application fees
- Other closing costs
You won't pay most of the above fees until the day you close with the exception of the home appraisal. You'll likely owe that fee at the time the professional appraiser visits your home.
4. File your mortgage refinance application
With your documentation ready to go and an understanding of the fees associated with the refinancing process, it's time to file your mortgage application. Just like your first mortgage, it can take a month or two for your new loan to close. After filing, you'll receive a Good Faith Estimate, which will be a more official estimate of the associated closing costs. The only thing to do now is wait for the loan application to be processed.
5. Close on your new mortgage
After all of the processing is completed, it's closing day! On closing day, you'll sign paperwork for your new loan. The bank will also issue a check satisfying your first mortgage. At this point, remember to cancel any automatic payments you have to going toward your old loan. Also, be on the lookout not only for your new loan's payment book, but also documentation that confirms your first mortgage is paid off. You'll want to keep that for your records as long as you own the home and for 10 years after you sell it.
Review the mortgage refinance process with Charter One
In many ways, refinancing a home loan is similar to the mortgage process you went through when you first got your loan. But, if you have more questions, feel free to reach out to a Charter One home loan advisor by calling 1-888-514-2300.