Loan Basics: Refinancing A Mortgage

You keep hearing about it: home loan rates are low, and may be lower than your current rate. So, let’s talk about what you need to know about refinancing a mortgage! Refinancing a mortgage is taking out a new home loan to pay off the existing home loan you have.  There are several reasons why a person may want to refinance.

Types of Refinances:

1. Rate & Term: Modifying the rate and the term of the mortgage to lower monthly payments
2. Cash-Out: Cashing out the equity that is in the house (increasing your mortgage) which will result in a higher loan payment

Knowing which type of refinancing you need can help get the conversation started. Are you looking to pay off your loan faster, or are you looking to leverage your home value?

Reasons to Refinance:

1. Lower the rate and/or payment of the loan
2. Get cash out to pay for things such as remodeling, a new roof, credit card debt, or finance a large purchase
3. Modify the term to shorten or lengthen the life of the loan

Mortgages accumulate interest over a very long period of time. If you are extending the period of your loan, or the amount of money owed, take a look at the big picture. Your lender can help you with an amortization schedule to make sure you understand the extra interest you may pay.

How to Refinance a Mortgage:

1. Determine how much you want to take out.  Do you want to just make the interest rate lower?  Are you making some home repairs and add it to what you already owe?  Is there credit card debt that you want to consolidate on to one loan?
2. Talk to your mortgage lender. They can give you a ballpark rate – most loans are based on your credit score. Typically the higher your score, the lower the rate. Some lenders have a flat interest rate and how much you are taking out against the house will determine it.  There will also be closing costs to pay for, so make sure to ask in advance. Most lenders will allow you to add these costs into the mortgage so you do not need to pay for it out of pocket.
3. Time.  Mortgages take time. It isn’t like a car loan where you can have it done in a day. Due to the need for an appraisal, mortgage refinances can take several weeks.  Your lender can give you a current estimate for turn around times, and where you are in the mortgage process.
4. Be prepared.  There are documents that you will need to bring with you to prove how much you make. Commonly you need to bring:

1. • W-2’s for the last 2 years
   • 2 most recent pay stubs for each person applying
   • Current mortgage statement
   • Property tax bill
   • Homeowners Declarations page
   • If making/receiving child support: Full court order stating the amount and terms of the support
   • If self-employed: 3 year’s tax returns
   • Human resources name & number to verify employment
   • 2 Months’ worth of financial bank statements
   • If you are retired or collecting SSDI: 1099-R for any Pensions/Annuities/Profit Sharing/IRA/Veteran’s benefits for the last 2 previous years (this will be with your taxes), SSA-1099 for any Social Security for the last 2 previous years (this should be with your taxes), and SSI Benefit Statement Letter

There may be other documents that the lender will need, so ask prior to meeting with them to keep things as smooth as possible. Remember: never e-mail your documents unsecurely. Protect your financial information!

Qualifications for a mortgage:

1. Credit history and score
2. Payment history on your current mortgage
3. Income and employment history
4. Equity in the house
5. Appraised value of home
6. Other debts you may owe money on

If you meet your mortgage lender’s qualifications, refinancing can be a breeze. Make sure to understand your financial situation before inquiring: if your score has gone down since your 1^st mortgage was taken out, or you make less money/have incurred more debt, you may need to work more closely with your lender. Don’t be afraid to ask your options before refinancing.

Evergreen Credit Union membership is open to everyone who lives, works, or attends a 2 or 4 year college in Outagamie, Waupaca, Waushara, Calumet, or Winnebago counties in Wisconsin. Information valid as of 11/5/21. Terms and availability may vary by financial and utility providers. Please consult your financial institution for eligibility and rates.