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The Mortgage Refinancing Process Explained

by Brandon Cornett

Are you planning to refinance your mortgage loan in the near future? If so, you would probably welcome a thorough explanation of the process you will go through. Knowing what to expect in advance makes the process a lot easier to navigate. So in this article, we will explain how mortgage refinancing works and what the whole point of it is.

Refinancing Process Overview

Refinancing can best be described as replacing an existing mortgage loan with a new one, with the end goal of (A) saving money, (B) switching to a different type of mortgage, or (C) a combination of these things. At least, that's how I explain refinancing whenever someone asks. Now with that basic overview behind us, let me explain the process you'll go through when you refinance your mortgage loan.

Step 1 - Research and Preparation

To explain the refinancing process, we obviously need to start at the beginning. And for you, this means research. Before you start contacting lenders or gathering refinance quotes, you should find out how much you owe on your current mortgage, as well as the value of your home. Your current lender can tell you what you owe, and you can get a rough idea of your home's value from websites such as HouseValues.com and HomeGain.com (personally, I recommend the former).

Let me explain why these two items are important. For one thing, property values in many cities have dropped in the wake of the 2008 housing meltdown (which preceded our full-blown economic crisis). So before you even begin the refinancing process you should make sure you don't owe more than your home is currently worth. If that's the case, you probably won't be able to refinance your mortgage loan. On the other hand, if you do have some equity built up (like 15% or more) then you might be a good candidate for refinancing, so you should move forward in the process.

Step 2 - Get Quotes from Lenders

It's easy to explain the next refinancing step, because you've most likely been through it before. Next, you simply have to apply for some quotes from lenders to see what they're willing to offer you. Thanks to the Internet, this part of the process is much easier than it was in the past. These days, you can use a reputable website such as LendingTree to get online offers from several lenders at once. This lets you comparison shop with less time and energy.

Step 3 - Review Offers for Financial Benefit

To further explain the mortgage refinancing process, we must address an important concept that many homeowners overlook entirely. It doesn't always make sense to refinance a home loan. In some cases, it's even a money loser. But you won't know until you get a quote / offer from one or more lenders. Once you know what interest rate you qualify for, you can calculate the savings of the new loan. You would then compare those savings to the cost of refinancing to see if it's financially beneficial for you.

I hope you've found this explanation of the refinance process helpful. If you want to learn more, I encourage you to visit the blog mentioned below.

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* Copyright 2008, Brandon Cornett. Brandon is the publisher of the Refinancing Q&A Blog as well as the Home Buying Institute.