How to Refinance Before the Term of the Mortgage Ends
- 1). Copy the documents that you'll need to prove your income and debt levels to your mortgage lender. These include your two most recent paychecks, last two federal income tax returns, credit-card statements, other loan statements, and savings and checking account statements.
- 2). Contact your mortgage lender. Explain that you would like to refinance your existing mortgage loan before its term ends. Explain that you can't afford to make the balloon payment at the end of the loan. Remember, too, that you don't have to work with your existing lender to refinance your loan. You can shop around for banks or lenders that offer the best rates and fees.
- 3). Answer your lender's questions. Your lender will probably ask for your Social Security number and property address. Your lender might also ask how much you owe on your current mortgage loan.
- 4). Give your lender the OK to have your residence appraised to determine its current value. If your home has dipped in value significantly, you might not have enough equity to qualify for a refinance. Most lenders and banks require you to have an equity level of 80 percent.
- 5). Give your lender the OK to check your credit. Banks and lenders rely on credit scores--which range from 330 to about 850--to determine who to lend money to and at what interest rates. If your credit score is under 620, you might not qualify for a refinance. If your score is 720 or above, you will qualify for the lowest interest rates.
- 6). Send your lender or bank the paperwork that you gathered in Step 1. Your lender will study these documents to determine if your gross monthly income is high enough and your debt low enough to qualify for a refinance. Lenders like to work with borrowers whose debt levels, once the new mortgage payment is included, are no more than 36 percent of their gross monthly income.
- 7). Sign the closing documents that your lender provides if you are approved for a refinance. This will make the refinance official and prevent you from having to make that balloon payment when the term of your initial mortgage ends.
