Understanding Mortgage Refinancing

    Refinancing your mortgage can simplify your financial landscape, allowing you to replace your existing loan with one that better suits your current needs. Whether it’s to capitalize on lower interest rates, alter the terms of your loan, or access your home’s equity for significant expenses, refinancing can be a wise strategy. But the journey begins with a clear understanding of your financial goals. Are you aiming to decrease your monthly cash outflows, shorten your loan’s lifespan, shift from an adjustable to a fixed-rate mortgage or take cash out of your home? Identifying your objectives is the first step toward shopping for the most favorable rates and terms.

    How Much Does It Cost To Refinance A Mortgage?

    A common initial inquiry is the cost involved in refinancing. While the process offers palpable benefits, it’s not devoid of expenses, typically around $3,500 in one-time fees. These fees are charged by the third-party services associated with refinancing: escrow, title, county recording offices, etc. and are fairly standard across the board regardless of the lender you choose to work with. The good news is that, in many cases, JVM Lending can help pay for these one-time costs with a lender credit, saving you from paying for these expenses out of pocket and helping make a refinance affordable and worthwhile.

    In addition to those one-time fees, you may also need to set up a new impound/escrow account for property taxes and homeowner’s insurance. While this does increase the costs you’ll see at the closing table, remember that you would have to pay your property taxes and homeowner’s insurance regardless of if you refinance. And, whatever balance you currently hold in an existing impound/escrow account with your mortgage servicer will be refunded to you after the refinance closes. So, when looking at the big picture, these impound/escrow costs are more of a “reshuffle” rather than a true fee.

     

    At the end of the day, it’s imperative to evaluate whether the long-term savings justify any upfront costs. Advisors at JVM Lending can clarify these expenses, guiding you through the cost-benefit analysis to ensure your decision aligns with your financial plan.

    Timing Your Refinance Right

    Refinancing requires careful timing. It’s typically advisable to refinance when interest rates dip or your credit score improves, allowing for more favorable terms. If interest rate markets are in a continuous downward trend and you can take advantage of JVM’s FreeFi (a refinance in which JVM Lending covers your one-time fees with a lender credit), it is likely worth considering refinancing more than once.

    Otherwise, if you are refinancing and paying the lender fees, the costs of refinancing may eclipse the advantages. In this case, you should calculate the break-even point of the refinance—the juncture at which savings surpass expenses—to understand how long it will be before you will have recuperated the costs borne up front.

    How Long Does It Take To Refinance A Home Loan?

    The question of “How long does it take to refinance a mortgage?” often arises. On average, the process takes around 30 days, yet this is subject to fluctuate based on the complexity of your financial scenario, lender efficiency, and factors such as property appraisals and title examinations. Prompt responses to lender inquiries and organized documentation can expedite the process, avoiding unnecessary delays.

    How To Prepare For A Home Appraisal For A Refinance

    An integral component of refinancing is the home appraisal. Its purpose is to ascertain the current value of your property, influencing the terms of your new mortgage.
    To ensure an accurate appraisal report, it helps to present a tidy, well-maintained home, and document any substantial improvements since the original purchase. Also, if you know of any homes in your area that sold well below the market price because of out-of-the-ordinary circumstances, like extreme disrepair or urgency to sell, it is worth mentioning that to your appraiser. Providing relevant data points will help the appraiser make a more informed value judgement. These efforts can significantly affect the appraised value, potentially improving your refinancing terms.

    Weighing The Decision To Refinance

    Deciding whether to refinance your home loan is not a decision to be taken lightly. How much does it cost to refinance a home loan? Is it a wise financial move for you? These are the questions a trusted lender like JVM Lending can help you answer. They’ll compare the costs of refinancing to your potential savings, ensuring you have a clear picture of the benefits.

    Refinancing can significantly affect your monthly budget and long-term financial goals. Therefore, it’s important to understand both the immediate and long-term implications of a new loan. This is where expert guidance from the professionals at JVM Lending becomes invaluable.

    Are There Any Risks To Refinancing My Home Mortgage?

    Refinancing your home mortgage can seem like a financial windfall with lower interest rates and reduced monthly payments. However, it’s not without tradeoffs that should be considered.

    • Extending the Loan Term:Extending your loan from a 15 year to a 30 year loan through a refinance will help significantly reduce your payments, but it will also mean that you pay more in interest over 30 years. To understand if a move like this is worthwhile, our team at JVM Lending can help you compare how much that monthly payment savings can grow if invested over time. In many cases, the improved financial standing you can gain by reinvesting the savings from your lower monthly payment will earn you more than the interest you will pay.
    • Paying More in Interest Over Time:A newly refinanced loan restarts your loan back at payment 1, meaning that any progress you have made in paying off the interest on your old loan is reset. But, depending on how many payments you’ve already made on your current loan, this may be less of a concern than it seems up front. If you only have 10 years left on your 30-year loan, for example, it is likely not worth refinancing because (1) almost all of your payments are going toward principal at that point and (2) refinancing into a 10 year loan to “duration match” might not result in any positive cash flow. But, if you’re only a few years into your 30 year loan, you will save far more from the refinance than you will have “lost” in interest already paid.
    • Closing Costs:If you are unable to take advantage of JVM’s FreeFi, in which JVM pays for your closing costs with a lender credit, consider when you might break even on the closing costs of your refinance. If you plan to move in a few years, you may not recuperate the costs paid for a refinance if you pay for them out of pocket.
    • Credit Score Impact:Refinancing requires a hard inquiry into your credit history, which can cause a temporary dip in your credit score. Additionally, closing your old mortgage account and opening a new one can also impact your score. But, these are short-term effects that self-resolve in a few weeks. Just keep these impacts in mind if you’re planning to take out another loan in the near future after you refinance.

    Securing the Best Refinance Rate

    When it comes to refinancing, securing the lowest possible interest rate is often the top priority for homeowners. A lower rate can translate into substantial savings over the life of your mortgage. But how can you help yourself get the best deal available? Here are two critical components:

    • Maintaining a Strong Credit Score:Your credit score is a crucial factor in determining the interest rate lenders will offer. The higher your score, the lower the risk you pose to lenders, which can lead to better rates. To keep your credit score high, pay your bills on time, keep your credit card balances low, and avoid taking on new debt before refinancing.
    • A Solid Payment History: Lenders will look at your payment history as an indicator of your reliability. A history of on-time mortgage payments can position you as a desirable borrower. If you’ve had late payments in the past, be prepared to explain them. There are narrow exceptions when late payments were because of extenuating circumstances, typically “acts of God” completely outside of anyone’s control.

    View mortgage rates for April 25, 2024

    What Documents Will I Need To Refinance My Mortgage?

    Embarking on the refinancing journey requires preparation, especially when it comes to documentation. Lenders need to assess your financial status to approve a new mortgage, and this means paperwork. So, what exactly will you need to gather? The staples in the document checklist for refinancing are proof of income, proof of assets, credit information, and your current mortgage details. Here’s a breakdown of what that typically includes

    • Proof of Income: Lenders want to ensure you have the ability to repay the loan, so they’ll ask for recent pay stubs—usually the last two months’ worth. Additionally, they’ll want to see your W-2 forms and personal tax returns from at least the past two years. If you’re self-employed, they may require more detailed business records or a Profit and Loss (P&L) statement.
    • Proof of Assets: You’ll need to provide bank statements from the past 2 months for any accounts you will be using to pay the closing costs. Additional accounts may be requested, too, if your loan requires that we show reserve funds available post-closing. If you have made any large deposits recently, be prepared to explain them, as lenders need to “source” any large deposits.
    • Credit Information: This is obtained through a credit report pulled by the lender. It is helpful for you to have a good understanding of your credit situation so that you may help explain any discrepancies or issues on your credit report. If you are aware of credit issues, having them resolved before applying for refinancing can help streamline the process.
    • Current Mortgage Details: This includes your most recent mortgage statement, proof of insurance, and any other documentation related to your existing loan. If you’re paying property taxes separately, be prepared to show recent tax statements.
    • Additional Documents: Depending on your situation, you might also need to provide documentation such as a copy of your driver’s license or other government-issued ID, Social Security number verification, and possibly a copy of your divorce decree if alimony or child support affects your financial situation.

    Will Refinancing Affect My Credit Score?

    Refinancing can have a small impact on your credit score due to the lender’s credit check. However, making consistent, on-time payments on your new mortgage can help your score recover and potentially improve over time. However, credit inquiries are the least impactful variable that impacts your credit score.

    The Home Stretch of Refinancing

    Refinancing your mortgage can be a powerful tool for enhancing your financial well-being, but it requires careful consideration and strategic planning. From understanding the intricacies of loan terms to managing the documentation and timing your application right, each step is crucial to achieving your financial goals.

    This is where JVM Lending stands out as your refinancing champion. Our expertise and personalized approach make us the ideal partner in your refinancing journey. We’re committed to providing you with the guidance needed to secure the best possible rates, minimize risks, and ensure that your refinancing experience is smooth and successful.

    Whether you’re looking to lower your monthly payments, tap into your home’s equity, or simply secure more favorable loan terms, JVM Lending is here to help you master the art of refinancing. With our deep understanding of the mortgage industry and dedication to our clients, we’re not just experts—we’re your allies in making smart, informed decisions that pave the way for your financial future. Contact JVM Lending by phone at (855) 855-4491 or by email at [email protected] for expert refinancing advice and let’s take the next step towards optimizing your mortgage together.

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