Refinance mortgage is getting a new mortgage taken to replace the old one. Refinancing is to allow the borrower a better rate of interest and term. The first loan is paid off, allowing the second to start.

Some people tend to take advantage of a refinance mortgage to shorten the length of their mortgage and to add equity to their homes to cover the expenses.

Reasons to go in for a refinance mortgage

• You can lower monthly payments by taking advantage of better mortgage rates. This will improve your monthly cash flow.
• Pay your loan off early by refinance mortgage. The monthly payments will be higher, but you pay less interest for the life of the loan. You can also change from Adjustable Rate Mortgage (ARM) to Fixed Rate Mortgage. Moving to fixed rate mortgage will give you monthly payments that are stable.
• Refinance mortgage helps you get equity added to your home to acquire cash for home renovations, tuition fees, debt consolidation and other major expenses.

Types of refinance mortgages

• Conventional fixed-rate mortgages
  This mortgage has the lowest fixed interest rates. The rate does not change for an entire lifetime. They have the lowest monthly payments, and you will have good credit and possess funds for the required down payment.
• FHA mortgages
  This mortgage has a very low down payment and is for those borrowers who require flexibility for certain credit problems, i.e., lack of credibility. They are less strict with the required qualification compared to other loans. They have an option for fixed-rate or ARM loans, and who don’t have the funds available for a larger down payment.
• VA mortgages
  This is a government-backed loan offered to the military. They have low or no down payment, no mortgage insurance is required, the qualification guidelines are flexible, and they have the option of fixed-rate or ARM loans. This is available for an active military member, veteran, or a surviving spouse.
• USDA mortgages
  There is loan program for individuals/ families who plan to occupy a single-family home in a designated rural area as their primary residence. There is no down payment, they have competitive rates on fixed-rate loans, flexible qualification guidelines, no maximum purchase price, live in a rural area, and do not have credit history or funds for down payment.
• Flex-term mortgages
  These loans allow you to set the terms. A refinance mortgage is given without extending the length of the loan and synced with your retirement.
• Multifamily (5+ units)
  Finance for a multifamily property is available from $1–6 million with low rates. They start from 3% to 80%. Loan-to-value limit is available.

Process

A refinance mortgage can be different in each state, and you need to check the regulations where the property is located. Another factor is the payoff fees, which is different prepayment fees. This is to prevent you from giving additional payoff. This is paid to the lender who has loans only the books for some time.

Refinance Mortgage loans take 30–45 days to close, but exceptions are possible if your finances are complex. To prevent delays, get the paper work ready, which you will know as soon as you apply for the loan. Collect, scan the documents like tax returns, income verification, which will save you delays. Following is the list of documents required.

• Proof of income
  Pay slips/stubs for the past 30 days. Self-employed will be asked for different documentation.
• Homeowners insurance
  Verify that your property is insured or will insured. Copies of your W-2 forms give the lender a broader financial picture.
• Copies of assets
  Lenders need to verify that you have the funds to cover various expenses. You must provide statement of account, statement for saving, statement for checking and 401(k) accounts, and investment records for mutual funds or stocks.
• Copy of title insurance
  This will help your lender verify the taxes, names on the title and legal description of the property.

Additional requirements

• Your lender will get your credit report which is a part of the refinance process. Get your Social Security number.
• As the rates drop and the home value rises, many homeowners have a chance to remove their PMI while reducing the overall monthly payment.
• Many loans have a requirement that you wait two years before refinance mortgage helps rid you of PMI. Check, but it’s not a guarantee that you will get it.