Equity Mortgage - How to refinance your mortgage loan

How to refinance your mortgage loan

by Mahala Davis

Refinancing your mortgage can mean cash for home improvements, debt consolidation or higher education. The decision to refinance your mortgage can be an intimidating one. It's easy for homeowners to become overwhelmed when faced with the different types of loans available, knowing what paperwork they need to begin the endeavor or which lender provides the best service. Arming yourself with a little knowledge beforehand can make the whole process a little less stressful.

Following are six tips for getting the right mortgage refinance loan for your budget and lifestyle.

Prior to meeting with your lender, it's a good idea to familiarize yourself with the different types of refinance loans available.

Types of Refinance Mortgage Loans

Fixed Rate Mortgage Loan - This refinance option is unaffected by fluctuating interest rates, making it easier to plan your monthly budget. Fixed rate refinance loans are popular among individuals with a fixed source of income. However, it can be viewed as a disadvantage when interest rates begin to fall.

Adjustable Rate Mortgage Loan - Unlike the fixed rate option, adjustable rate loan payments rise and fall with current interest rates. This can add up to a significant savings on your monthly mortgage payments when rates are low, but when rates increase, your payments will rise accordingly. Most adjustable rate loans offer an introductory period (usually 3-5 years) during which the borrower is guaranteed a low fixed rate.

Interest Only Mortgage Loan - With this type of loan, borrowers are required to make payments towards the interest portion only of the loan funds for a predetermined period of time. After this interest only option expires, the borrower is then required to begin making payments towards the principle.

Balloon Mortgage Loan - Refinancing your mortgage loan with a balloon loan gives the borrower the advantage of a low interest rate for a short time span (usually 7-10 years,) requiring that the loan balance be paid in full with the last payment, a "balloon payment."

Home Equity Mortgage Loan - Home equity loans are popular with borrowers wanting to do home improvements or investments. This loan option allows you to borrow against the equity you've accumulated as the security for the loan and has the advantage of a fixed payment amount, unaffected by fluctuating interest rates. When choosing this option, borrowers must consider that they will be reducing their home equity as a result.

Line of Credit - Another option based on the equity you've accumulated in your home, line of credit loans allow you to borrow funds based on your mortgage balance. This loan option is handy when you need extra cash and offers lower interest rates than personal loans and credit cards. Payment options are more flexible than standard loan options, but as with home equity loans, borrowers will be affecting their home equity.

The borrower will want to discuss these loan options further with their lender to ensure that they find the right loan to best serve their needs.

Compare Rates

Compare interest rates offered by up to four different mortgage loan companies. Taking the time to shop around and making inquiries can make a difference which can add up to significant savings. Ask friends and colleagues for their recommendations.

Documentation

The loan application process with go smoothly if the borrower comes prepared with all the necessary documentation when applying for a refinance mortgage loan. The required documents may vary, but most lenders will request the following:

Tax Returns or Pay Stubs (last two years)

Bank Statements (last two months) or VOD (Verification of Deposit) from your bank 
Electronic Appraisal

Hazard Insurance

If the borrower has chosen a web-based lender, most documentation can be faxed, e-mailed or sent by overnight courier.

Prepare for Fees

Fees incurred for services such as credit checks, application fees, title searches etc., may be due before the loan is processed. To assure your mortgage refinance goes smoothly, the borrower should make sure he has these funds available when payment is due.

Loan Lock

A loan lock is an agreement between the borrower and the lender, stating that the interest rate and points charged will not change in relation to varying market rates, for a specific period of time. Lenders can take from 30 to 90 days to process a loan application, a loan lock protects the borrower from higher interest rates should they increase during that time. This practice doesn't always work to the borrower's advantage. If rates decrease before processing of the loan is complete, the lender may opt to process the loan at the higher rate, although this is usually open to negotiation.

Be Patient

After the borrower has submitted his loan application to the lender and ensured that all documentation is in order it can take up to 90 days for the application to be processed. While it is acceptable to check the progress of your application, repeated phone calls to the lender will not make things move any faster. Step back, take a deep breath and be patient.

Familiarizing yourself with the process, terminology and options available to you while refinancing your mortgage can lead to a less stressful experience for both the borrower and the lender.