Refinancing Your Mortgage? Be Prepared With These Questions
The 2022 housing market is nothing if not unpredictable. With interest rates rising faster than expected through the year’s first six months, the rates have suddenly changed direction and started dropping again, albeit slowly. With rates falling back closer to 5%, more homeowners will no doubt be looking to capitalize on something that they might have been worried about missing out on this year – refinancing their mortgages.
But before you go jumping into the deep end without looking, there is still a lot to consider before choosing to refinance your mortgage if you want to get into a better position to reach your financial goals. Here are six key questions to ask your lender before refinancing your mortgage this summer.
#1: What Do I Need to Qualify for a Refinance?
Every lender has their own requirements that a borrower needs to meet if they want to get approved for a mortgage refinance. And different types of mortgages can also have different approval requirements.
From your credit score and debt-to-income ratio to how much equity you have in your home, there are a variety of thresholds that you will need to satisfy, so your first step is to find out from your lender what their qualification requirements are, so you know what you are dealing with.
#2: What Types of Refinances are Available?
Homeowners choose to refinance a mortgage for several different reasons, from saving money on their monthly payments to taking equity out of their homes to pay for expensive things like home improvements, medical bills, or college tuition. Asking your lender what refinances are available to you will help ensure that you choose the one that is best suited to help you reach your short- and long-term goals.
#3: How Will Refinancing Affect My Monthly Mortgage Payment?
If you are refinancing to secure a lower interest rate, then you will most likely be able to save money on your monthly payment but just how much depends on how much lower of an interest rate you can get compared to what you’re currently paying. If you are taking cash out with your refinance, then depending on your rate and terms and how much money you take out, your monthly payment could wind up being higher than what you’re paying now.
Therefore, if you have a specific payment range that you want to stay within, it is important to find out from your lender exactly how your refinance will impact your monthly payment.
#4: How Long Do I Need to Live in the Home to Break Even on Closing Costs?
Refinancing requires you to pay closing costs just like you did when you closed on your original home loan. As a result, for many borrowers it can take a few years before the savings they enjoy from their new lower monthly payment allows them to reach their break-even point.
If you wind up moving before you reach that point, then you won’t wind up saving anything and your refinance might even wind up costing you more money over the long term.
#5: Will My Loan Be Sold or Serviced In-House?
Not every mortgage lender services their loans in-house. In fact, it is not uncommon for some lenders sell their loans to ensure that they have enough cash flow to continue to offer loans. When this happens, a homeowner’s mortgage payment is made out to another company instead of to their lender. Of course, there are also lenders that sell the loans they close on but they retain the servicing.
In this case, you would make your monthly payment directly to the lender.
Ideally, you should try to find a refinance lender that will service your loan in-house. This will make it easier to get your questions answered and any potential problems resolved quicker.
#6: What Can I Expect From My Closing Disclosure?
When you refinance your mortgage loan, you will receive a Closing Disclosure three business days before you close on your new loan. This document includes everything you need to know about your new term, your APR, and your closing costs. Before your loan closing can be added to the lender’s schedule, you must acknowledge that you read and reviewed your Closing Disclosure. Therefore, you will want to ask your lender specifics as to how you’ll receive your Closing Disclosure and how you should acknowledge it, so you can avoid any potential delays or unexpected pitfalls.
Refinancing your mortgage can be a rewarding experience that can help you reach your financial goals quicker, but only if it’s done right. You want to make sure you choose the best mortgage product for your situation, and you want to work with a lender who will guide you along the way and help make the transition into your new home loan easy, quick, and painless.
Asking the right questions is therefore an important part of the lender vetting process. It helps you learn more about the lender and their level of expertise, and the answers they provide will give you a good idea of what you can expect should you choose to work with them.
