How a Refinance Works
Posted on February 5, 2021
Refinancing is the process of replacing an existing mortgage with a new loan. You can refinance your mortgage to lower your monthly payments, lower your interest rate or change your loan terms altogether. Regardless of why someone chooses to refinance, the process is very similar to the process you went through to apply for your current mortgage.
How it works
To refinance your mortgage, you will need to apply for a new loan, just like when you applied for your original mortgage. Lenders will require you to provide some new paperwork and meet a few more requirements in order to be considered for a refinance.
Maintained original mortgage: Your lender will need proof that you paid your original mortgage for at least 12 months. You can prove this through a mortgage statement.
Equity: Talk to your lender about the percent of equity you have in your home currently and if it makes sense for you to refinance or if you should wait until you have more equity in your home. In some cases, if you have enough equity in your home, you might be able to cut out your home insurance costs through a refinance.
Income: Whoever is on the loan will need to prove they have a regular income Your lender will also check your debt to income ratio (see our DTI blog here) to make sure you can still pay your bills based on the amount of money you make and any existing debts you have.
Time: You can do a break-even analysis to see if you’ll be in your home long enough to benefit from the savings that a lower interest rate and payment could bring you. based on how much time you have left on the loan and how long you are planning on staying in your home.
Ready to refinance?
If you are thinking about refinancing or want to learn if now is a good time for you to refinance, reach out or start a refinance application now. One of our qualified loan partners will be happy to help you get started on your refinance.