What Happens When I Refinance My Home?

By Bob Redtree

Refinancing is a second mortgage loan that uses the home as collateral. This is often done to get a lower interest rate or equity built up on the home.

There are two types of refinance

Simple finance

This mortgage secures a loan that paid off the first mortgage while using the home as collateral. Ideally, the interest rate and the monthly payment of the refinance are lower. The principle owed on the home is the same unless closing costs are added and not paid up front.

Cash-out refinance

This is similar to a simple finance but allows the borrower to receive the equity in the home as a cash payment. This amount is added to the new loan amount can be used any way the homeowner wants.
Steps of refinancing a mortgage loan.

Comparison shop

The refinancing of a home mortgage should start with comparison shopping of different lenders. Like many other products, terms and prices will vary among lenders, so it is important to have options to choose from.

Application and appraisal

After a lender has been chosen, an application needs to be submitted and a home appraisal set up. The appraisal will determine the value of the loan as a percentage of the appraised property value. This is how a lender will decide how much money will be lent to the borrower. The higher this ratio is the more risk the loan will be for the lender, so the interest rate and/or fees may be higher.

Checking of documents

To also determine the risk of this loan, the lender will check the credit of the applicant, pay stubs from employment, records from banks as well as tax returns showing income. If this review is satisfactory, title documents for the refinance will be drawn up for the loan closing.

Related posts:

1. What Is A Streamline Refinance?
2. If mortgage rates are low, should I refinance?
3. What Occurs When I Refinance My Mortgage?
4. What Are The Conditions On A Refinance Interest Rate?
5. How Often Can I Refinance My Mortage?