What is the process to refinance a home?

Question

A family member is thinking about refinancing their home. The idea is to take advantage of low rates to get a lower interest rate loan, ideally with a longer term (current mortgage is 15yr I believe), and maybe refinance part of the equity they already have accumulated on the house. The house is in a desirable part of a town that has not been touched too much by the bubble burst, so it is probably worth quite a bit more than the amount still owed on the mortgage (to be confirmed, of course).

So for example, if the home is worth 100, and the mortgage is still for 50, they might want to try to refinance for 80.

They asked me to look into that, and although I can probably run the financial calcs, I'm completely ignorant of the practical aspects of refinancing one's loan.

So here are my questions:

1. Who refinances loans? Banks, credit unions,...? What are the pros of going with one or another?
2. What are the key steps in refinancing a mortgage?
3. Is there anything in particular that I should look out for?

Answer 1

Who refinances loans? Banks, credit unions,...?

Yes. There are also Internet lending sites, mortgage brokers, etc.

What are the pros of going with one or another?

rates, terms, points, closing costs.

What are the key steps in refinancing a mortgage?

You need to do some shopping and figure out who's charging how much in closing costs (could be anywhere between 0 and $10000+), and who's offering best rates.

But before you do the shopping, you need to know how much the property cost (at least approximately, so that you won't be surprised by the results of the appraisal), how much do you owe, and how much you want to cash out for.

Also, you need to know your own credit score and check on your credit report for potential problems.

Is there anything in particular that I should look out for?

Points and closing costs. Points may reduce drastically the interest rate on your mortgage, but will make it more expensive on the short term. Closing costs may make the whole process not worth it. Some mortgagors tend to offer very low rates, but then inflate the closing costs (kind of bait and switch thingy).

Make sure you get a clear and reasonable closing costs estimate, and that it doesn't change all of a sudden (look for reviews, that happens a lot especially with mortgage brokers and Internet mortgagors).

Remember, everything is negotiable, and you should consider all the costs, not just the advertised rate.

Also, make sure you read carefully the closing documents and deeds and notes (or get your lawyer to read them on your behalf).

Answer 2

Check with your current lender as they might have a streamlined refinance that will have minimal to no costs.