The refinance process starts well before you start filling out refinance applications. Depending on how well you’ve prepared and organized your refinance information will determine the time it takes to complete the refinance. We will explain the refinance process and what it looks like for your mortgage.
Refinance Process: Getting Started
When planning to refinance, the first thing every homeowner should do in the refinance process is perform an in-depth assessment of the benefits that they’ll gain from refinancing.
Generally, the primary reason people refinance is to save money through their interest rate. There are several ways a homeowner can achieve that goal and gain additional benefits.
Do More Through Your Refinance Process
Most people just look at a refinancing with the goal of refinancing to a lower interest rate, and assume the refinance process will then be over. But the refinance process shouldn’t end there. You can save even more interest over the life of your loan by shortening the term of the loan in conjunction with lowering the interest rate. For example, if you are able to cut five or ten years out of your mortgage term, and lower your interest rate at the same time, you can save tens of thousands of dollars.
Goals of the Refinance Process
Every homeowner should start the refinance process by establishing the end-goals of refinancing. Based on those goals, create as many refinance scenario options possible. If your refinance goal is to save interest, think about shortening your mortgage term as well as lowering your interest rate. If your goal is simply to shorten your term, use a refinance calculator to see how lower interest rates could be available from shortening your mortgage term.
Debt Consolidation Refinance
Cash-flow is a concern for many homeowners, and refinancing at longer-term or potentially higher interest rate can free up a lot of money to put towards the household budget.
For some homeowners, refinancing is to utilize equity to pay off other debts such as credit cards, student loans, or the cost of home improvements. This type of refinance is a debt-consolidation refinance. Homeowners should perform a cash-flow analysis when considering a debt-consolidation refinance. Many of the debts (that cash from the refinance is paying back) have shorter payback periods—and mortgages generally have much longer payback periods, so you are essentially stretching out the length of the payback with a debt-consolidation refinance.
Debt-consolidation refinances can be beneficial because mortgage rates are typically much lower than unsecured debt interest rates. Additionally, mortgage interest is tax-deductible, so you can achieve a substantial savings with a debt consolidation refinance.
Refinance Closing Costs
Mortgage refinances have almost the same closing-costs as purchase-transactions. However, most closing costs can be rolled into your new loan, and some lenders offer pre-packaged refinance loans that have little or no closing costs. You should inquire with your lender if they offer a no-closing cost option on a refinance.
Refinance Process Timeline
The government has placed many new regulations on mortgage lenders, and because of that, the process between a refinance and a purchase are almost identical. Since the Dodd Frank Act, the amount of financial documentation that a mortgage applicant has to provide has significantly increased.
Today, anyone who applies for a mortgage, will have to provide all of income and asset documents to the lender. The lender will perform third-party verification on most of those documents, which takes a few weeks to accomplish. In addition, since the new TRID mortgage rules took effect in October 2015, lenders have minimum timelines that are regulated by the government—usually adding a few days to the overall process.
Despite all of those hurdles, your lender should be able to close your mortgage transaction (whether it’s a refinance or a purchase) in about 30 days.
In conclusion, it’s important that you do not short-change yourself in the analysis process of your refinance. Be sure your mortgage banker provides you with a number of different analyses so you can see what the refinance process looks like from start to finish for your situation.
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