How does a mortgage refinance work? It’s basically taking out a new loan to pay off the original mortgage. Most often, this is done to use lower interest rates to lower your payment, take cash out, or change the length of the term.
It’s basically the same process as when you got your original loan. You talk to several mortgage companies, trying to get the best rate and terms possible, and compare them against each other. Then take the best offer and put it up against your current loan to make sure it’s an advantage.
If you have managed to improve your credit since the original loan, you will likely get a better loan now, depending on interest rates.
Why Should You Get a Mortgage Refinance?
There are a lot of different reasons to refinance, and they all depend on your situation.
If you are paying too much for your mortgage every month, you can lower the rate and payment. This works well if rates have dropped since you first signed up, and you can save money on the interest you’ll pay both monthly and over the course of the loan.
If you’re swimming in equity, meaning money paid into the home and rising value of your property, you can cash out a portion from a refi to pay off bills, make a large purchase, or make home improvements or repairs.
If you have an adjustable rate mortgage, or a HELOC, you can change it to a fixed rate in order to avoid market swings and know what your payment will always be.
You can also change the length of your mortgage. Usually, if you opt for a shorter term on your mortgage, you can get a lower interest rate. Dropping the spread down from 30 years to 20 or 15 can save you interest payments on the loan.
How Can You Qualify For a Mortgage Refinance?
It’s going to be about the same qualifications for a mortgage refinance that you had for buying the home. The lender will have to look at your:
Credit history and score
Payment history on your existing loan
Income and employment history
Equity in the home
Home’s current value
Other debt obligations
If you have improved these, or have kept them the same and rates are lower, you should qualify for a better loan than what you had previously.
Will a Mortgage Refinance Hurt My Credit?
First, there will be a hard inquiry on your credit, which can drop your score by a few points. If you have multiples of these in a small window, anywhere from 14 to 45 days, they will typically count as one, lessening the total impact. However, shopping again over several months can have a harmful effect, and drop your credit score further.
You can also take a length of credit history hit when your old mortgage is replaced with a new one.
You can also take a hit if you miss payments during the process, so make sure that you keep up with all payments during this time!
If your credit score is on the edge of qualifying, these could be the push that keeps you from getting a better refinance.
Keep it Steady During the Mortgage Refinance Process
Buying big-ticket items during the refinance process or getting unexpected money coming in can affect your ability to get a mortgage refinance. This can change your debt-to-income ratio and keep you from getting the terms that you are looking for.
While you are completing the mortgage process, don’t make any changes to your lifestyle, like a new job.
Call The Home Loan Expert Team at 800-991-6494. You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?
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