I was recently reading a news article about the fact that there has been a flurry of refinancing activity over the past year. There are so many homeowners that are trying to refinance that lenders are having trouble actually keeping up with the requests. The reason for the refinancing slowdown can be attributed to new government regulations and layoffs in the mortgage servicing industry. Lenders are now required to manually process refinancing requests to verify information dealing with income, credit, and employment. Lenders are understaffed because they laid off a large number of the employees that handled refinancing loans. The result is that the refinancing process is taking longer than ever with some loans taking over 90 days to process. Let’s take a look at the refinancing process and address some of the most frequently asked questions.
What is refinancing?
Refinancing is the act of taking an existing loan and replacing it with a new loan with different terms. A refinanced loan can either be less expensive or more expensive depending on the length of the loan and the corresponding interest rate. Refinancing a loan makes a lot of sense if it saves you money. You can refinance just about any major installment loan that you have. The most popular types of loans to refinance are home loans and automobile loans.
Why do people refinance loans?
Most people refinance loans in order to get a lower monthly payment. Refinancing a loan makes sense when you can lower the monthly payment by decreasing the total amount of interest that you will have to pay. Individuals with adjustable rate mortgages and high interest fixed rate mortgages are the ideal candidates for refinancing. For example:
It would make sense to refinance a loan if the current interest rate being paid is 7% and you could get a loan for 4%. A 3% savings may not sound like much to you but it can drop the amount of interest that you pay on a fixed rate loan dramatically.
Refinancing is also used to tap into the equity that is left in an asset. This was a major trend during the early 2000’s. Refinancing to tap into the equity in a home is not as popular today since the housing bubble burst.
How do you qualify for a refinancing loan?
It is still very possible to refinance a loan today but the standards have changed. You will need better credit and more equity. If you have a history of making your payments on time and have been in your home for a few years then you will likely qualify for refinancing. You may even qualify for a no cost refinance loan in which the lender will pay for all of the settlement costs.
Where can you go to refinance a loan?
There are lots of banks, credit unions, and mortgage brokers that actively work in refinancing loans. You can check online and shop your loan until you find a lender that you are comfortable with. The low interest rate environment is terrible for saving money but is great for getting a lower rate on an existing loan product. Lower interest payments will make getting out of debt a whole lot easier.
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