When you initially applied for and acquired your mortgage loan, it suited your financial needs. Over time, however, your personal situation may change--resulting in the need for a new mortgage loan. As long as you've owned your home for longer than six months, you may be eligible for a mortgage refinance to alter your current mortgage loan into one that better adheres to your financial situation and goals.
Facts
A mortgage refinance occurs when a homeowner uses a new mortgage loan to pay off the old one. The homeowner must then adhere to the terms of the new contract rather than the original one. You may opt to refinance your mortgage either with your current lender or a different loan provider. According to U.S. News & World Report, refinancing isn't as simple as merely visiting your bank and asking for a new mortgage loan. You'll need to meet specific, and sometimes strict, credit and income criteria before being approved for a new mortgage.
Time Frame
The average mortgage refinance takes approximately two weeks to one month to complete. The time frame for your refinance depends upon a variety of variables, such as how many loan applications your lender is currently processing, the type of refinancing loan you are applying for, the availability of an appraisal and how much documentation your lender requires. Some mortgages can be refinanced in a matter of days while other refinance loans could take well over a month. Ask your loan officer what the average time frame for processing a mortgage refinance is at the financial institution handling your new loan.
Benefits
Refinancing your mortgage loan carries numerous benefits depending on your financial situation. If you can afford to pay a larger mortgage payment than the one you pay currently, you can use a refinance to convert to a shorter mortgage loan and build home equity faster. If your original mortgage loan carried a variable interest rate that will soon adjust, refinancing to a fixed rate mortgage can protect you from significant changes in your monthly mortgage payment. Perhaps the greatest benefit to refinancing, however, is that it can grant you lower mortgage payments if your new loan carries a lower interest rate or longer repayment term.
Considerations
One important factor that determines your eligibility to refinance your home loan is the availability of equity in your property. Lenders typically won't loan you a greater amount of money than your home is worth because, should you default on the loan, the lender couldn't recoup its losses through the sale of the property. If you owe more on your mortgage loan than your home is worth, you may be eligible to refinance under the federal government's Making Home Affordable program. Through this program, you can refinance up to 125 percent of your home's value. You must be current on your monthly mortgage payments and your loan must be serviced by either Freddie Mac or Fannie Mae to qualify.
Warning
Refinancing isn't always a safe or wise decision. The New York Neighborhood Economic Development Advocacy Project (NEDAP) warns homeowners to carefully evaluate any offers to refinance to ensure that they don't become the victims of a scam. According to the NEDAP, hidden balloon payments, lenders that encourage you to falsify information on your loan application and loan officers who incorporate terms different than the ones you agreed to into the loan are all signs of a potential scam. Always read your loan paperwork carefully to avoid falling into a financial trap.
References
- "U.S. News & World Report": Low Mortgage Rates--7 Things You Need to Know to Refinance; Luke Mullins; 2008
- Virginia Mortgage Bankers L.L.C.: Home Loan Refinance Frequently Asked Questions (FAQ)
- University of Minnesota Extension: When Should We Refinance?
- Making Home Affordable: Home Affordable Refinance
- NEDAP: Scams Targeting Homeowners
Member Comments