Steps to Refinance a House
- Evaluate your current mortgage. Look not only at your monthly payment but also how long it will take you to pay off the loan and what prepayment penalty you'll be liable for if you pay the mortgage off early by refinancing. Also evaluate your interest rate. If you have an adjustable rate mortgage (ARM), compare your interest rate to what it was when you got your mortgage and to the maximum interest rate that your lender can charge.
- Shopping for a home refinancing loan is like shopping for your original mortgage. Each lender will have its own offers with different interest rates, loan terms and miscellaneous fees. You can opt for an ARM or a fixed-rate mortgage. If your credit score is different from what it was when you first got a mortgage, or if the economy has shifted, you can expect different interest rate offers from what you're paying. Compare offers from multiple lenders or go through a broker who will charge a commission but also let you compare loans from a wide range of sources.
- Gather financial documents including pay stubs or tax returns to serve as proof of income, bank account statements to show your savings and mortgage documents that show your current loan status and how much you owe. Lenders will run credit checks and either approve or deny your application, just as with an original mortgage application.
- Your new lender should handle the refinancing paperwork and start sending you monthly bills immediately. You will also receive a notice from your former lender indicating that your loan is paid in full, and charging the prepayment penalty if it wasn't included in the amount that your new lender paid to finish off the mortgage. You'll continue making payments according to the new loan structure and your old loan will appear on your credit history as paid.