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How Long Does It Take to Refinance a Mortgage?
Refinances are in high demand currently and have been since the start of the COVID-19 pandemic. Part of the driving force behind the demand stems from the record-low mortgage rates we’ve seen the last few months. When rates drop, homeowners tend to refinance — and rates are extremely low right now due to the economic hit the nation took from COVID.
Does that mean it’s the right time for you to refinance, though? Well, it depends. There are a lot of factors to consider when you’re weighing whether to refinance your home loan, including the timeline for the refinance itself. It can take a while to refinance your home loan, so you need to know what that time frame is and how it works to know if you want to move forward with a refi.
The process of refinancing a mortgage
The process of refinancing a mortgage is similar to closing on a regular mortgage loan. You’ll need to start by vetting lenders, settling on a loan type and shopping around for interest rates and loan terms.
But is that all it takes to refinance your loan? No, not really. As with regular mortgage loans, you’ll need to produce new financial documents, fill out paperwork and other documents your lender needs to get the process going. You’ll also have to complete all of the other requirements your lender needs for refinancing. This could mean getting a new appraisal, a new inspection or any other number of requirements.
Many of those requirements will take time, and many come with new costs, too. A typical loan closing costs between 2% and 5% of your loan principal, so you’ll need to make sure that the amount you will save with your refi is enough to make up for what you’re spending. All of this needs to be done before you ever sign any documents.
Once you’re on the right track to refi, you may want to also lock in your mortgage. This may again cost you some money to do, but it’s an important step. Mortgage lenders will allow you to lock in an interest rate for anywhere from 30 to 60 days, or sometimes for as long as 120 days, which should give you plenty of time to meet all of the other requirements without losing your rate to fluctuations.
Once all of those tasks are out of the way, you’ll close on your home loan. From start to finish, a typical refinance can take anywhere from 20 to 45 days, but it may take much longer depending on the circumstances and the type of loan.
Should you refinance your mortgage?
Right now, the average mortgage rates are hovering around 3% which makes it a good time to refinance, and if you have excellent credit, you could qualify for a really low rate at the moment. Saving money is smart, but you need to consider all of the factors involved.
For example, one of the major perks of a refinance is locking in a lower interest rate, which can lower your monthly payment and save you money over time. If your credit has improved or market rates have dropped since the time you signed on your original loan, a refinance could be a good way to help you save. However, that’s not always the case.
Refinancing comes with expensive closing costs, and if you only stand to gain a slightly lower interest rate, you may end up spending more than you’ll save to close on the loan. You’ll need to do the math to figure out whether that’s the case, though.
You can also opt to refinance in order to change your loan term from 30 years to 15 or 20, which would save you money on interest over the life of the loan, but cost you more each month for your payments.
If you have owned your home for a while and have built up significant equity, you might qualify for a cash-out refinance, which allows you to borrow some of your home’s equity through a refinance. You can then use that lump sum to pay down other debts or finance a purchase, but it will cost you. You’ll have to pay back that money you borrowed with interest, which is added to the total principal you owe on your loan.
Another good reason to refinance is to change your rate type. If your original loan carries an adjustable rate (ARM), securing a fixed-rate loan can ease the stress of unpredictable fluctuations in the housing market. With an ARM, you run the risk of your rate increasing each year if rates have gone up.
Documents, documents and more documents — that’s the name of the game with refinances. You’ll need to provide your lender with proof of all earnings and debts, bank balances and other information on existing debts. You’ll also need a ton of other documentation, including two years of tax returns and proof of any additional income you may have. That all takes time to collect and organize.
In addition to paperwork, each lender will have its own requirements you will have to meet to refinance. You’ll need the right credit score, income level and may have to meet a bunch of other metrics, too. You’ll also probably need to get a new appraisal or inspection, or complete other similar tasks.
Ultimately, the requirements for refinancing are similar to the requirements for taking out a mortgage: you’ll need to have all of your financial documents in order and jump through the hoops required by your lender, which can include all sorts of different things.
Tips for refinancing your mortgage quicker
While you can’t always predict the length of every refinance, you can ask your lender to share its average refinance times before you begin. Most refinances won’t take longer than a month, so if the company quotes you an average of 60 or 90 days, that could be a red flag.
If you want to expedite the process, you should gather all the paperwork you need before you begin. Respond quickly to questions and inquiries from your lender, and produce whatever documentation they need as soon as possible.
The reality is that some issues will come up during the process. No matter how diligently you gathered paperwork before your refinance began, your loan officer or the mortgage underwriter will have additional questions or need other supporting documentation at some point.
If you want to expedite things, make sure not to hold up the process on your end. Sign documents as soon as you receive them. In most cases you’ll receive documents by email to review, sign and return, which should make it easy.
You can also try using a closing checklist to keep you organized throughout the process.