How to Refinance a Mortgage & Home Equity
- 1). Review the current balances and terms on your existing mortgages. It is necessary to know as much detail as possible regarding the loans that are on the property. Add the balances remaining on all loans to determine the amount of the new mortgage. Also, review the loan notes to determine if there are prepayment penalties or conditions that must be satisfied before the loans can be paid off.
- 2). Examine the current interest rates and payments being made on the original mortgages. Determine if the interest rates on any loans are adjustable, and, if so, how often they adjust. Also, find out how much of each payment is applied to principal and how much to interest. Look for other items, such as homeowners insurance, mortgage insurance and property taxes, that may be escrowed on your payment.
- 3). Research the approximate current value of your home. A full appraisal is not necessary at this point. Ask a real estate agent or check online at sites such as Zillow.com (see the Resources section) to get an estimate of your home's market value.
- 4). Calculate the loan-to-value ratios required to refinance your mortgage and home equity loans by adding together the balance of all loans and dividing the result by the current estimated value of your property. For example, if you have a mortgage with a balance of $250,000, a home equity line of credit with a balance of $90,000, and the property's value is $400,000, then your loan-to-value is 85 percent (250,000 + 90,000 = 340,000 / 400,000 = 0.85).
- 5). Know your credit rating and the items on your credit report. Order free annual credit reports from the three major bureaus at AnnualCreditReport.com (see the Resources section). your rating will determine if you are able to be approved for the best interest rate that the lender has to offer.
- 6). Research loan offers and interest rates available for your situation. Pay attention to loans and rates that match your loan-to-value ratio. Interest rates for loans with lower ratios typically have lower interest rates.
- 7). Contact lenders whose loan offers and terms are best for your situation. Be sure to compare interest rates, lender fees and closing costs, and inquire about documentation requirements. Obtain and complete a loan application.
- 8). Review the Good Faith Estimate (GFE) form, which breaks down all fees and closing costs, received from the lender to ensure that the amounts are acceptable.
- 9). Sign the new loan documents. Your lender will set up a closing date at a bank or title company where all documents will be signed. When all paperwork is in order, the title company will pay off the existing loans and the new mortgage will go into effect.
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