Guide to Refinancing Your Mortgage:

Compare the Top Refinancing Lenders & Understand the Home Refinance Process

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When you finally become a homeowner and take out a mortgage, you are locked into a financial commitment that will likely last more than a decade. Like anything in life that covers that period of time, situations change, as do our preferences.

That is why mortgage refinancing has become such a popular financial product for homeowners in 2019. Refinancing a home can be incredibly effective in potentially getting a consumer a lower interest rate and more favorable mortgage terms.

Refinancing works by the new mortgage lender paying off the old mortgage and providing you with a new mortgage loan, ideally at a lower interest rate. While refinancing your mortgage can make great sense at times, it can be incredibly counterproductive for some.

The new term you get after you refinance your home loan will likely only be better if you are in great financial standing with healthy credit and significant savings. If you are in more precarious financial situation, mortgage lenders will be less inclined to give your favorable terms.

This is why refinancing a home varies on a consumer-by-consumer basis. Every consumer’s personal finance situation is different, and ultimately, that is what will decide your mortgage refinance terms. Each mortgage refinance lender will be able to offer a homeowner different terms, making it important to compare as many mortgage refinance options as possible.

Luckily for you, the consumer, True Quote Mortgage has laid out those various mortgage refinance lenders below, including the terms each lender can generally offer, the consumer each one is looking for, and the interest rates you may be able to secure through refinancing.

Additionally, we have provided a complete guide to refinancing your mortgage, including the advantages and disadvantages of the process, how mortgage refinancing works, and everything you need to have ready before you try to refinance your home loan.

So continue reading to compare the best mortgage refinance lenders, while also expanding your understanding of the process when you refinance your mortgage.

What Is Mortgage Refinancing?

Refinancing your mortgage is the process in which a new mortgage lender pays off your existing mortgage, and then provides you with a new home loan that features a different interest rate and terms.

The decision to refinance your home loan can be a difficult one as the benefits of mortgage refinancing really vary according to the respective consumer’s personal finance situation.

In most cases, refinancing your home is done for any of the following three reasons:

To lower monthly mortgage payments

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To change the home loan from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage

Other than those three reasons to refinance your mortgage, some homeowners will want to free up some cash for renovations or repairs to their home or to pay off other debts, and will use equity in their home to receive a cash-out refinance.

Further, if a homeowner currently holds an FHA mortgage that they are paying a premium on, refinancing to a new type of home loan is always an option to end paying that additional money for mortgage insurance.

Now with a better understanding of what mortgage refinancing is, lets get into the advantages and disadvantages of refinancing a home.

Advantages of Refinancing Your Mortgage

There are numerous advantages that come with refinancing your mortgage, including:

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    Lowering Your Interest Rate

    If you are able to lower your interest rate, possibly because of an improved credit score, you may be able to reduce your monthly mortgage payment by more than $100, even if the duration of your home loan remains the same.

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    Lowering Your Monthly Payment

    If your terms after refinancing your mortgage have become more consumer-friendly by reducing the amount owed each month, you can use those extra savings for other things, like paying off debt or investing in retirement.

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    Removing Private Mortgage Insurance (PMI)

    If you have built up enough equity in your home when it comes time to refinance your home loan, you may not be required to pay PMI anymore, which will lower your monthly payments.

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    Changing from Adjustable-Rate Mortgage to Fixed-Rate Mortgage

     Adjustable-rate mortgages may provide a lower interest rate for a limited amount of time, but if it starts to climb and makes monthly mortgage payments unpredictable, you can refinance to a fixed-rate mortgage to get consistent and easily manageable mortgage payments.

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    Cutting the Length of Your Home Loan

    When you first took out a mortgage, you may have went with a 30-year loan, but refinancing your home loan can reduce the payment term if you feel as though you can pay off your mortgage more quickly.

    Disadvantages of Refinancing Your Mortgage

    There may not be as many disadvantages as there are advantages when you decide to refinance your mortgage, but it is important to still be aware of them:

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      Closing Costs

      When you refinance your mortgage, you essentially have to go through much of the same process as when you originally took out a home loan. Your new mortgage refinance lender may charge high fees for refinance transactions. Usually, closing costs after refinancing your mortgage will run somewhere between 3% and 6% of the refinancing amount.

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      Loan Term

      Sometimes, if you extend your current mortgage payment terms, you may be stuck paying off your home loan for a longer time than if you had just stuck with the original home loan. For example, if you have been meeting monthly mortgage payments for 10 years and then refinance your mortgage to a new 30-year term, you will be paying off the new mortgage for an additional 10 years than had you just stayed with your first home loan.

      How Does Mortgage Refinancing Work?

      The process of refinancing your mortgage works a lot like the original mortgage process does, except instead of the original home seller receiving payment for the price of the home from the old mortgage lender, the new mortgage lender will receive payment to pay off the balance of the old mortgage loan.

      The mortgage refinancing process begins with you first deciding if refinancing your home makes sense, and if it does, you can begin comparing mortgage lenders to see which one can offer the best terms and interest rate after refinancing.

      Like the original mortgage process, you must have all the same documentation necessary for a mortgage application, like your W2 forms, pay stubs, bank statements, and credit history.

      Mortgage refinance lenders will then send you loan estimates that will detail the closing costs, mortgage terms, monthly payments, and new interest rate that will all depend on what your personal finance situation looks like.

      After comparing the refinance offers from various mortgage refinance lenders, you will have to decide on which home refinance offer is the best and move forward with that refinance lender. This entire process, from applying for mortgage refinancing to closing on a deal, usually takes around 45 days.

      After selecting a mortgage refinance lender, that company will pay off your existing home loan and provide you with a new mortgage, hopefully with more favorable terms and a lower interest rate. Monthly mortgage payments after refinancing are used to pay off the previous mortgage that was covered by your mortgage refinance lender, instead of being used to pay off the price of the home that was covered by your original mortgage lender.

      As part of understanding the process that comes with refinancing a home loan, you must also be aware of the different types of mortgage refinancing.

      The Different Types of Mortgage Refinancing

      There are a few different ways to go about the process of refinancing your mortgage, such as:

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      Rate-and-Term

      The most common way to go about refinancing your mortgage. While the principal balance of the loan does not change, your interest rate, repayment term, or possibly both, will change after refinancing.

      Cash–Out

      If you opt to go the cash-out route, your new home loan will be larger than what you previously owed on the original mortgage, but you will be compensated for that difference with a cash payment. This is a great option if you are looking to renovate your home or free up some cash to pay down other debts.

      Cash–In

      If you find yourself in a more comfortable personal finance situation after taking out your original home loan, you could put more money down during the refinancing process to receive a more favorable interest rate or a shorter repayment term. Further, this route could be used to eliminate PMI if you had been paying that originally.

      What Are the Costs of Refinancing Your Mortgage?

      Typically, there are a few costs that come with refinancing a home loan that you must be aware of before moving forward with the refinancing process.

      As noted above, closing costs are usually between 3% and 6% of the refinancing amount. Here is where that cost is going:

      Application Fee

      Similar to the initial mortgage process, mortgage refinance lenders will charge you, the consumer, for the cost of checking your credit report, in addition to the cost attached to processing the loan refinance request.

      Title Insurance and Title Search

      This component of refinancing costs will cover the cost of the insurance policy, often provided by the title insurance company. The policy will cover any costs associated with losses incurred by discrepancies found in the property’s title, in addition to the price of going through public records to confirm who owns the property.

      Refinance Lender’s Attorney Fees

      Any fees that the lawyer who conducts the closing of the mortgage refinance charges the mortgage refinance lender will be passed down to you as the borrower.

      Fees After Originating the New Home Loan

      When a mortgage refinance lender prepares a new home loan, they will charge you an origination fee that comes from the work the refinance company completed to move forward with the refinancing process.

      When Is It Time to Refinance Your Mortgage?

      Refinancing your home is a huge decision, and one that is not right for everyone. Before you jump into refinancing your mortgage, consider your personal finance situation and if it will lead to you getting a more favorable mortgage or if it will simply lead to you paying more than if you had just stuck with your original home loan.

        Reasons to Refinance Your Mortgage

        You Have Improved Your Personal Finance Health

        If your credit score, and subsequent personal finance health, has improved since your original mortgage, than it may make sense to refinance. For example, if you have less debt then before, more assets, more cash stowed away, or a better paying job, then you might receive more favorable mortgage refinance terms, including a lower interest rate.

        If You Are Trying to Pay Off Your Loan Faster

        If you are able to refinance your 30-year mortgage into a 15-year payment term, than you might be able to pay off your home loan in half the time. But be aware that while you may end up paying less in interest, your monthly mortgage payments could go up.

        If You Are Trying to Rid Yourself of PMI or Mortgage Insurance Premiums

        If you originally took out a conventional mortgage loan and were forced to pay PMI due to a down payment lower than 20%, but have since grown your equity in the home by meeting monthly mortgage payments, than it may make sense to refinance your mortgage and drop PMI. Or, if you originally took out an FHA home loan that comes with a mortgage insurance premium, refinancing that mortgage once you have built up enough equity will lead to a new type of mortgage that doesn’t have a built-in insurance premium.

        Reasons to Not Refinance Your Mortgage

        If Your Personal Finance Health Has Not Improved Since the Original Mortgage

        If your finances and credit history have not seen any improvement, or even if they have worsened due to increased debt, than it does not make sense to refinance your home. On top of dinging your credit score due to credit inquiries that come with the refinancing process, you will receive terms that are not any better than your original mortgage terms, such as a similar, or even higher, interest rate.

        If You Are Trying to Consolidate Debt

        If you are trying to consolidate high-interest, unsecured debt, like credit card debt, into a low-interest mortgage, you are simply stacking your monthly mortgage payment, which could have severe consequences. For example, if you are unable to meet the new monthly mortgage payments due to the added credit card debt, than you run the risk of losing your home by defaulting on your mortgage.

        If You Are Trying to Move Into a Longer-Term Loan

        If you have met your monthly mortgage payments for 10 years, and then are looking to refinance that mortgage for a lower interest rate, it is imperative to look at your overall costs. For example, if you refinance your home into a 30-year mortgage, you will likely end up paying more in interest as a result of making mortgage payments for 10 more years than would have been necessary had you stuck with your original home loan.

        Calculating the Cost of Refinancing Your Mortgage

        With some reasons laid out to either refinance your mortgage or to not, it is time to get an idea as to if you should refinance your home loan.

        Using True Quote Mortgage’s mortgage refinance calculator, you can see how much money you could potentially save if you make the decision to refinance your mortgage. The calculator considers all factors critical to the mortgage refinancing process, including your location, the amount, term, interest rate, and origination year of your current mortgage, and what you are attempting to do by refinancing your mortgage to give you a better idea of if refinancing your home loan is right for you.

        Mortgage Refinance Checklist

        With a deeper understanding of the mortgage refinancing process, we have laid out a checklist for you to consider when you finally decide if refinancing your home loan is right for you or not. The following list lays out all steps important to the mortgage refinance process.

        Understand What Goal You Have in Mind

        What are you trying to accomplish by refinancing your mortgage? Do you want to shorten your home loan term? Perhaps you want to rid yourself of FHA mortgage insurance, or reduce the amount you need to pay each month for your mortgage? Or you may think that your improved financial situation could result in a lower mortgage interest rate.

        Compare Mortgage Refinance Rates

        There are more resources available now than ever before that will allow you to compare various mortgage refinance lenders, including this very page provided by True Quote Mortgage. By comparing various mortgage rates and terms from various lenders, you can set yourself up to receive the best possible deal when it comes time to refinance your home loan.

        Apply With At Least a Few Refinance Lenders in a Short Period of Time

        Once you have figured out a few mortgage refinance lenders that you think will be best for your personal finance situation, apply to at least three, but maybe up to five, different mortgage lenders within a short period of time to reduce the damage that multiple credit inquiries will have on your score.

        As part of this step, it is important that you have all documentation necessary for refinancing your mortgage on hand. The paper work required is very similar to what is needed for the original mortgage process, including things like pay stubs, proof of savings or assets, credit report, and W2 forms.

        Lock in Your New Mortgage Rate

        Once you have applied to a few different mortgage refinance lenders, you need to decide on the lender that offers the best refinance deal and lock in the interest rate. Once you have locked in an interest rate, it will remain the same for a period of time in which you and the refinance lender will try to close on the refinanced home loan before the rate lock period ends.

        Close on Your Refinanced Mortgage Loan

        The final step that comes with refinancing your mortgage. During this stage, you will pay for all closing costs, close on the refinanced mortgage, and begin with your new repayment terms.