Mortgage Refinancing:

You've probably heard it often -- another friend or neighbor has refinanced and is enjoying lower monthly mortgage payments. You may have read headlines that talk about mortgage interest rates reaching historical lows. So, you ask, is now the best time to refinance my mortgage?Refinancing is essentially paying off your existing mortgage and taking out a new one. This section discusses the basics of refinancing, such as the reasons for refinancing and the steps involved.

Homeowners choose to refinance for a wide variety of reasons. Some of the most popular ones are to:
obtain a lower interest rate,
build equity faster,
change loan type,
take advantage of an improved credit rating
draw on equity already built in the home

Obtaining a lower mortgage interest rate can lower your monthly payment and is the most common reason homeowners refinance. Building equity faster is also a popular reason because owning a home can be one of the safest and most profitable investments you can make.

You may have selected an adjustable-rate mortgage (ARM) when mortgage interest rates were higher than rates today. To ensure you had the lowest monthly mortgage payment possible, you probably found the ARM most attractive because it had a lower interest rate than a fixed-rate loan in the early years.When interest rates drop, however, refinancing to a fixed-rate loan can guarantee a lower rate for the life of the loan -- as opposed to the interest rate on an ARM, which can adjust yearly or even twice a year, depending on the type of ARM you select.

Build Equity FasterYou may want to build equity in your home more quickly than when you first obtained your mortgage. In this case, ask your Fannie Mae lender partner about a mortgage with a shorter term. For example, if you have a 30-year mortgage, you may want to refinance to a 10-, 15-, or 20-year mortgage and build equity faster.This approach typically makes sense for homeowners who can afford an increase in their monthly mortgage payment. Each month, a certain part of the monthly payment goes toward the interest expense on the loan; the remainder is applied to the principal (some is also usually apportioned to escrow and taxes). Generally, the shorter a loan term, the higher the payment, but a greater percentage of that monthly payment is applied to the principal.

Change Loan TypeYou may have selected an adjustable-rate mortgage (ARM) when mortgage interest rates were higher than rates today. To ensure you had the lowest monthly mortgage payment possible, you probably found the ARM most attractive because it had a lower interest rate than a fixed-rate loan in the early years.When interest rates drop, however, refinancing to a fixed-rate loan can guarantee a lower rate for the life of the loan -- as opposed to the interest rate on an ARM, which can adjust yearly or even twice a year, depending on the type of ARM you select.Your Fannie Mae lender partner can also provide information about ARMs with a "conversion period," which allows you to convert from an ARM to a fixed-rate mortgage, without refinancing.

Obtain a Lower Interest RateWhen you refinance to lower your interest rate, you can significantly reduce your monthly mortgage payment, so long as you don't increase your mortgage principal amount (as in a cash-out refinance).It's important, however, to evaluate how long you plan to remain in your home. If you plan to stay in your home for several years, evaluate whether the cost savings resulting from a lower interest rate outweigh your refinancing fees. If you plan to sell your home in the near future, refinancing may not be your best option.

Requirements & CostsBecause refinancing involves many of the same steps that you followed to get your current mortgage, you may already know what to expect. You may, however, face a few additional steps and different types of expenses.Required InformationSimilar to the traditional mortgage process, a lender will require you to complete a loan application. The application assesses your financial situation, credit history, the property value, the amount of equity in your home, and other data.The lender will require verification of employment and income, information about debts and assets, account numbers and balances for savings, checking, and other financial accounts, a title search, a copy of the site survey, and
an appraisal (in some cases an exterior-appraisal only). Information about your present mortgage will also be required, such as current monthly payment,
outstanding mortgage balance, status of property tax and insurance payments, and
the lender's contact information (if you're not refinancing through your original lender). Time and CostsSome of the types of fees you paid during the closing on your original mortgage will be charged during a refinance. These may include an application fee, title search and title insurance fees, appraisal costs, loan origination fee, discount points, prepayment penalties, and if applicable, legal service fees.Sometimes a new appraisal will not be necessary, and some fees and closing costs may be waived.