Mortgage Refinancing

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You've probably heard it often -- another friend or neighbor has refinanced and is enjoying lower monthly mortgage payments. You may have read headlines that talk about mortgage interest rates reaching historical lows. So, you ask, is now the best time to refinance my mortgage?

Refinancing is essentially paying off your existing mortgage and taking out a new one. This section discusses the basics of refinancing, such as the reasons for refinancing and the steps involved. It also discusses your financing options.

Why Refinance?

Homeowners choose to refinance for a wide variety of reasons. Some of the most popular ones are to:

obtain a lower interest rate,
build equity faster,
change loan type,
take advantage of an improved credit rating, or
draw on equity already built in the home.

Obtaining a lower mortgage interest rate can lower your monthly payment and is the most common reason homeowners refinance. Building equity faster is also a popular reason because owning a home can be one of the safest and most profitable investments you can make.

Eligibility

To help determine if you're ready to refinance, ask yourself these questions:

How long do I plan to remain in my home?
How many years remain on my existing mortgage?
Can I afford the costs involved?
Will I save money over the life of my loan?

Requirements & Costs
Because refinancing involves many of the same steps that you followed to get your current mortgage, you may already know what to expect. You may, however, face a few additional steps and different types of expenses.

Required Information
Similar to the traditional mortgage process, a lender will require you to complete a loan application. The application assesses your financial situation, credit history, the property value, the amount of equity in your home, and other data.

The lender will require

verification of employment and income,
information about debts and assets,
account numbers and balances for savings, checking, and other financial accounts,
a title search,
a copy of the site survey, and
an appraisal (in some cases an exterior-appraisal only).

Information about your present mortgage will also be required, such as

current monthly payment,
outstanding mortgage balance,
status of property tax and insurance payments, and
the lender's contact information (if you're not refinancing through your original lender).

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