The refinancing of one’s mortgage is an activity in which many people seem to engage. Individuals across the country are looking to lower their interest rates and cut payments, especially in this economy. However, what factors should people be aware of before they engage in this process?

 

What is Refinancing?

Essentially, when a home is refinanced, interest rates are lowered. As a result of this, monthly payments also go down. Individuals are thus able to save hundreds of dollars each month and they can put this money towards repairs. In order to begin the refinancing process, homeowners must go through the bank they set up the mortgage with.

 

Cash-Out Refinancing

When people are looking to refinance, one of the options they might have is to do cash-out refinancing. Different banks have various requirements when it comes to such a process, but the following is a typical example. Let’s say that a couple purchased a home for $180,000 and the house is appraised at $250,000. The couple will essentially want to refinance and receive a percentage of the difference between the current appraised value and the original loan amount. This percentage is usually determined by the bank.

 

Necessary Conditions for Cash-Out Refinancing

Refinancing with cash-out has more requirements than a traditional refinancing process. First of all, the house needs to be worth a certain amount more than that for which it was purchased. A house that has decreased in value is not eligible for such a program. Once again, the exact amount by which the value needs to have increased is going to be determined by the bank. In general, it’s unlikely a home that has increased by only five or ten thousand dollars is going to qualify for such a program.

 

The Necessary Paperwork

When going through the refinancing process, the bank will likely need a lot of the same information than they did when the home was originally purchased. This information includes W2 forms, recent pay stubs, driver’s licenses and so forth. Individuals should fax over all of their information in a timely manner. The new interest rates are only able to be secured for a certain amount of time, and have the potential to run out. In that event, the home owners may no longer be able to get that lower rate.

 

The Appraisal

Generally, a home needs to be appraised when it is going in for refinancing. A few different ways exist for conducting this appraisal. Some banks will simply look online for more information, but others tend to choose sending representatives to see the house in person. It’s likely that a full appraisal will be required though, and homeowners will have to pay for this fee themselves. A full appraisal generally only takes a few minutes to go through, but homes should be clean and tidy when the agent comes to see it.

The Close

Once again, it is necessary for the homeowners to close so that the new interest rate does not expire. When the bank calls to set up a date, the homeowners should agree to a time in the very near future.

Refinancing can take a while to complete. Therefore, it is important for both parties to keep an open line of communication and to send necessary documents as soon as possible to ensure that the interest rate is firmly secured.

 

This article was written by Magnus Keith and Donald Turner on behalf of Kanetix. If you’re interested in moving to Ontario, check out the Ontario mortgage rates at Kanetix.

   

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Comment (1)

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