With mortgage interest rates at historic lows, many homeowners are contemplating whether they can refinance their mortgage and lower their monthly payment or save on interest charges. And for many buyers, refinancing might make financial sense right now.
According to the U.S. Census Bureau and U.S. Department of Housing and Urban Development, lending experts say mortgage refinances increased by 65% in the first quarter of 2020, as more homeowners took advantage of the market by locking in lower interest rates.
Figuring out how to refinance your mortgage may seem like a daunting task, but it’s similar to applying for an initial mortgage loan — although there’s no realtor or pending home purchase to worry about. If you’re wondering how to refinance your mortgage, the answer is surprisingly simple.
How to Refinance a Mortgage in Five Simple Steps
- Apply for a mortgage refinance loan
- Evaluate different loan terms and interest rates available
- Obtain a home appraisal to determine current value and equity
- Submit financial documents to facilitate underwriting review process
- Close on the loan, and pay related closing costs and fees
Can you refinance a mortgage?
In most cases, as long as you meet basic credit requirements and have enough home equity — the difference between the home’s current value and how much you owe on the mortgage — you can refinance a mortgage. Refinancing simply means you are trading your current mortgage for a new one with different financing terms.
How to refinance a mortgage depends on your personal goals. Do you want to lower your monthly payment or pay off your mortgage faster? Do you need money for home renovations or to pay off other debt? How long do you plan to live in your home?
First Merchants’ team of lending experts can walk you through the process of how to refinance a mortgage from start to finish. Our mortgage loan officers (MLOs) will work with you to help reach your financial goals from decreasing debt, lowering monthly expenses or increasing savings.
For many homeowners whose current mortgage loan has an interest rate of 5% or above, refinancing makes sense. Let’s say you bought a home for $300,000 with a traditional 30-year mortgage at a 4.5% interest rate. Using an online mortgage calculator, if you lower the interest rate to 3.5%, you could save $173 per month — or more than $62,000 over the loan’s lifetime.
Where do I go to refinance my mortgage?
To refinance a mortgage, you need to find a lending institution who can fulfill your needs. Once you identify a prospective lender, a lending expert can help you understand how to proceed with your mortgage refinance.
Some lenders offer online applications for mortgage refinances. First Merchants features a online application to make initiating the process easy. You’ll need documentation to apply, such as your most recent pay stubs, W2s, bank statements and proof of homeowner’s insurance.
Closing represents the final step of how to refinance a mortgage. At this time, you must pay any bank fees and costs not escrowed into the loan, such as home insurance and property taxes. If you’re doing a cash-out refinance, the bank will issue your money at the closing. On average, closing costs total about $3,000, which includes lender fees, as well as the appraisal and title expenses, although costs can vary.