There are several reasons why homeowners seek to refinance their mortgages. It could be that they’re looking to lighten their payment burden, borrow more money, lower interest rates, or other financial-related reasons.
You’re here today because you want to know the steps for refinancing your mortgage in CA. Of course, you don’t want to mess it up. But before we talk about the steps, let’s have a quick recap of mortgage refinancing.
What Is Mortgage Refinancing?
In its simplest definition, mortgage refinancing in CA means paying your current mortgage and replacing it with a new one, but with a few perks. This new mortgage could have a bigger mortgage balance to allow you to borrow more money or a different interest rate, period, or mortgage type.
When Is the Right Time to Refinance Your Mortgage?
Whether or not your mortgage is up for renewal, you’ll need to refinance if you want to make significant changes to your contract. The following changes will require a mortgage refinance:
- Borrowing extra money by increasing the mortgage amount
- Changing the interest rate on your mortgage before the end of your term
- Changing the length of your mortgage term or amortization period
If you’re now sure you’re going to refinance your mortgage, let’s proceed to the steps.
The Steps to Refinancing Your Mortgage
1. Examine whether refinancing your mortgage is the best option for you
Paying off mortgage loans is a long-term commitment. Therefore, you should have a very good reason to do so. Don’t take out loans for something that’s just getting depleted. They will only become a burden to you.
When evaluating whether you’re going to take on good or terrible debt, also do some quick research. If the current position is close to perfect and the market’s expected state in the near future is pretty stable, now is the time to apply for a loan.
Don’t forget to consider other options, like applying for a HELOC or getting a second mortgage.
2. Determine whether you can afford the refinanced mortgage’s monthly installments
The value of your home determines the amount you can borrow when refinancing your mortgage.
Example: If your house is appraised at $300,000 and you owe $180,000 on your existing mortgage, your home equity is $120,000.
However, because you can only borrow up to 80% of the appraised value of your house ($240,000), your maximum refinancing credit limit is $60,000 (240K-180K). If your lender agrees, you’ll have a total debt of $220,000 on your refinanced mortgage.
3. Assess your credit score
Does your credit score catch up to your dreams? If it’s bad or bruised, the chances of getting approved for a loan may be slim. Therefore, the best thing you can do is to fix it first.
4. Examine your refinancing alternatives and shop around
Don’t put all your eggs in one basket. Ask and shop around for alternatives before deciding to refinance your mortgage. According to the Financial Consumer Agency of Canada, lenders who agree to refinance mortgages may offer borrowers the following options:
- A second mortgage
- A home equity line of credit (HELOC)
- Blend and extend
- Other forms of loans or credit lines
5. Calculate the total cost of refinancing your mortgage
Also, consider the total cost of refinancing your mortgage. You’re not only paying the usual processing costs, principal, and interest, but this could also include the following:
- Legal fees
- Mortgage registration fees
- Home appraisal fees
- Mortgage discharge fees
- Mortgage prepayment penalties
- Title search fees
- Title insurance fees
6. Fill up and submit your loan application
Now that you’ve already covered the crucial steps, it’s time to fill out the form and submit your loan application. You may want to seek the assistance of a mortgage professional to help you run things smoothly and with fewer headaches.
7. Examine the proposed mortgage agreement after you’ve accepted
If you’ve been pre-approved for a mortgage, don’t sign right away. Read and review the terms and conditions, especially the provisions about interest rates. If there’s a part that you don’t understand, seek help from a mortgage lender expert to clear things out. Pay attention to mortgage agreements too. Just because they’re not charging closing fees, doesn’t mean that they will not. Lenders will have to find ways to collect that in other forms sometime later.
After a long day of battling with mortgage lenders, it’s now time to decide which mortgage refinancing lender in CA you want to proceed with. At this point, be sure that you’ve already assessed the whole situation and have covered your financial ground.