Mortgage refinancing is a process through which a borrower replaces an existing mortgage with a new one, which will be used to pay off current debt. But a mortgage holder who intends to refinance his or her mortgage should determine first if refinancing is financially feasible and beneficial.
In general, a refinance makes sense only when it delivers significant benefits, such as debt consolidation, a lower interest rate, lower monthly payments, and a new amortization schedule that better fits the financial goals of the borrower. The homeowners who choose to refinance will need to make their monthly payments according to the terms and conditions of the new mortgage.
Although the refinancing process depends on the type of mortgage and the lender issuing the new loan, it typically involves the steps presented below.
From a lender’s standpoint, refinancing is no different from issuing a conventional mortgage. Therefore, the documents for a mortgage refinance are often identical to the paperwork required for the original mortgage.
This means that the lender will reevaluate the employment history of the borrower, as well as his or her credit situation, including the current income, outstanding mortgage balance, current monthly payment, and payment history of property tax and insurance.
Because the lender will use this information to determine the credit worthiness of a prospective borrower along with his or her ability to repay the new mortgage, a refinance applicant should make sure that the details on the application are accurate and match the documents provided.
A home appraisal is a document that establishes the current market value of a piece of property. Before approving a mortgage refinance, some lenders require a home appraisal to be performed just to make sure that the property hasn’t depreciated over time, and to determine whether or not a prospective borrower has sufficient equity to support the new loan.
After the lender orders the home appraisal, a qualified appraiser will inspect the home in question and take pictures of it. If the home has depreciated or appreciated over time, the appraiser will write a comprehensive report and inform the lender accordingly. The terms and conditions of a mortgage refinance could change significantly if the assessed value is considerably higher or lower than the previously appraised value.
A new lender’s title insurance policy might also be required when refinancing a mortgage. That is because the original title insurance policy only protects the lender that has issued the initial mortgage. As the new mortgage is used to pay off current debt, the lender who provides the mortgage refinance will also require protection of his interest for the new loan. Many borrowers are required to purchase a new lender’s title policy even if they refinance with the same lender.
The lender will review all the documents submitted by the applicant, the home appraisal, and the title search report. If he is satisfied with the application, he will issue a pre-approval letter. It is important that the borrower reads the letter carefully in order to make sure that the amount, terms, and conditions stipulated match his or her expectations.
If everything is in order, the lender will issue a Closing Disclosure form that the borrower will need to review, sign, and return to the lender. Then, the lender will review the borrower’s employment and credit status once again to make sure that nothing has changed during the application process. Within several days, the lender will confirm where and when the closing will occur.
Paying Off the Original Mortgage
It is the responsibility of the lender to pay off the remaining balance of the previous mortgage. In case of a cash-out refinance, the borrower takes the difference in cash or the lender transfers the amount to the borrower’s bank account, as agreed.
Mortgage Refinancing with North Florida Mortgage Is Easy
At North Florida Mortgage, our experienced mortgage brokers continuously monitor the lending market for the latest mortgage products and the best interest rates. To meet the financial goals of our borrowers, we match their requirements with the best refinancing options available. This way, we’re able to help our customers save money on their mortgages and meet their financial goals.