EVALUATE THE BENEFITS OF A REFINANCE
Refinancing your loan could mean a lower payment, a shorter loan term, or cash to invest in your business, home, or future.
A refinance can offer many potential benefits for homeowners. From lowering your monthly payment, shortening your loan term, or converting equity to cash, refinancing is an option that homeowners consistently consider.
If you’re considering refinancing your current mortgage loan, this step-by-step guide will help you through a general evaluation of the benefits and requirements. If you want a more thorough evaluation, contact one of our experienced Park Cities Mortgage loan officers. They can help you determine if refinancing is economically prudent and if it will accomplish your goals.
Step 1: Make Sure the Timing Is Right.
Refinancing can offer sound financial benefits, but only if the time is right.
Generally, refinancing may be in your best interest if:
- The interest rate difference between today’s rates and your current rate has dropped sufficiently to make a refinance economically prudent. Refinancing in this scenario could lower your monthly payment.
- Your home value has risen significantly or you’ve made valuable improvements. If your home market value has increased since your purchase, you may be able to convert equity to cash for renovations, college tuition, or to pay off other high-interest debts.
- You are currently paying mortgage insurance and your value has increased. If you now have at least 20 percent equity in your home, you can refinance and eliminate your monthly mortgage insurance.
- You have been paying down your 30-year loan for less than a decade. Refinancing is typically best in the earlier years of your loan, since a large portion of your mortgage payments are applied to interest rather than equity.
Don’t make these decisions alone. Obtain the insights and information from one of our Park Cities Mortgage loan officers so that you are able to make an informed decision. They have the experience to help you.
Keep in mind, you are not limited to your current lender for refinancing options. You have the freedom to consider any mortgage company for refinancing purposes. The refinance mortgage process is as important as a purchase option. Choose your mortgage lender wisely based on experience and knowledge.
Step 2: Assess Your Cash Flow.
A cash-out refinance allows you to convert your equity into cash. The cash can be applied toward credit card balances, college tuition, medical bills, or any other expenses. This mortgage option is typically referred to as a “cash-out” refinance. Like a standard refinance, your new loan with a higher loan balance pays off your current mortgage loan and you receive cash for the difference.
To see if a cash-out refinance is a good fit for you, assess your cash flow and current debts/expenses. Cash-out refinances are often used for:
- Home improvements and renovations
- Consolidating or paying off high-interest debts, like credit cards
- One-off large purchases, like a car or wedding
- Tuition and education costs
- Medical bills
If you’re considering financing an expense – or you have existing high-interest debts that are straining your family finances – refinancing may be a prudent economic solution.
Mortgage interest rates are typically lower than rates on other types of debt options, thereby saving you interest over the life of your loan. Mortgage interest may also afford you tax deduction benefits not available under other debt options. Check with your CPA or financial adviser for details.
Step 3: Start the Refinance Process.
If, after analyzing your cash flow and assessing the timing, you determine that a refinance makes economic sense, it’s time to start your application:
- Your loan officer will obtain your credit report for review. Review your report for accuracy and to determine if any steps are needed to improve your credit scores, especially since credit scores influence interest rates.
- Gather your financial documents and records. Depending on your specific circumstances, this may include your most recent tax returns, W-2s, and pay stubs. Our loan checklist offers a full breakdown of the documents that may be required.
- Know your loan options. Do your research and determine what type of loan is best for your situation. Do you want an adjustable rate or fixed rate mortgage once you refinance? Your loan officer will help you determine which option is best for you.
With Park Cities Mortgage on your team, you will receive the guidance needed for all aspects of the refinance process.
Once you have completed this stage of the process, the completion of a formal loan application and the submission of your supporting documentation will be simple.
Step 4: Move Toward Closing.
After submission and review of your application and financial documentation, your loan officer will assume full responsibility for managing the remainder of the process. Your loan officer’s product team will order an appraisal, and they will let you know if any other paperwork is needed.
As the process progresses, at the appropriate time a closing date and time will be scheduled based on your scheduling requirements. At least three business days before closing, you will receive a Closing Disclosure outlining your actual closing costs and a summary of your loan details.