At Avanti Way Financial, we understand that refinancing your mortgage can be a powerful tool to improve your financial situation. However, choosing the right lender is crucial to ensuring that you get the best loan terms and a smooth experience. The right lender will influence everything from your interest rate to the loan products available to you.
To help you make an informed decision, here are 11 essential questions you should ask your lender when refinancing your mortgage.
What Types of Refinance Loans Do You Offer?
Different types of loans offer various benefits depending on your goals and financial situation. Whether you have a conventional, FHA, VA, USDA, or jumbo loan, it’s important to understand your options. Each type of loan may come with its own set of advantages, so ask your lender what types they offer and which would best suit your refinancing needs.
Does It Make Sense to Use a Rate-and-Term or Cash-Out Refinance?
There are two main types of refinances:
- Rate-and-term refinance: This changes the interest rate and/or term of your loan but does not affect the loan balance. It’s typically used to lower monthly payments or adjust the loan’s duration.
- Cash-out refinance: This allows you to tap into your home equity, providing you with extra cash for purposes such as debt consolidation or home improvements.
Discuss both options with your lender to see which aligns best with your financial goals.
What Do I Need to Qualify for a Refinance?
Each lender has specific requirements for refinancing, typically including your credit score, debt-to-income ratio, and home equity. Ask your lender about the qualifications for refinancing and how you can ensure you meet their criteria for the loan type you’re considering.
How Much Equity Can I Convert Into Cash?
If you’re considering a cash-out refinance, it’s important to know how much of your home equity you can access. Most lenders will not allow you to cash out 100% of your equity, typically leaving you with at least 20% equity in your home. Ask your lender about the limits they impose and whether your equity is enough to meet your goals.
What’s the Difference Between Interest Rate and APR?
While the interest rate is the base percentage you pay on your loan, the Annual Percentage Rate (APR) includes not only the interest rate but also any additional fees and closing costs. When comparing loans, it’s important to focus on the APR, as it gives you a more accurate picture of the total cost of your mortgage.
Do You Offer Rate Locks?
Interest rates can fluctuate daily, so a rate lock can protect you from rising rates during the refinancing process. If your lender offers rate locks, ask about the duration of the lock and any fees for extending it if your refinance takes longer than expected.
How Will Refinancing Affect My Monthly Payment?
Refinancing can change your monthly payment based on the loan terms you choose. For instance, refinancing to a lower interest rate or a longer term might reduce your monthly payment, while refinancing to a shorter term may increase it. A cash-out refinance could also lead to a higher payment. Be sure to ask your lender how refinancing will impact your monthly budget.
Will I Need to Pay Private Mortgage Insurance (PMI)?
If your new loan balance exceeds 80% of your home’s value, you may be required to pay PMI, which protects the lender if you default on the loan. Ask your lender whether PMI will be necessary with your refinance and how much it will cost.
Who Will Service My New Loan?
Some lenders sell the loans they close on, while others retain servicing. If your lender sells your loan, you may end up making payments to a new company. Working with a lender that services your loan in-house can simplify the process, as you’ll always know who to contact if you have questions or concerns about your mortgage.
What Types of Closing Costs Should I Expect?
Closing costs typically range from 2% to 6% of your loan amount. These costs can include fees for appraisal, title insurance, and underwriting. Ask your lender about the specific closing costs you should expect and whether you have the option to roll them into your loan.
What’s a Closing Disclosure?
The Closing Disclosure is a document that outlines the final details of your loan, including your interest rate, loan terms, and closing costs. You will receive it at least three days before closing. Make sure you understand all the information, and ask your lender to explain any items you’re unsure about.
Final Thoughts
Asking the right questions when refinancing can help you make an informed choice, ensuring you get the best loan for your needs and financial situation. At Avanti Way Financial, we’re here to guide you through the refinancing process, offering expert advice to help you secure a loan that fits your goals. Reach out today to learn more about your options and take the first step toward a smarter mortgage solution.
