Refinancing 101 with OVB’s Greg Phillips

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With the current low interest rates the idea of refinancing your loan may have crossed your mind. While refinancing is a common practice, it can seem overwhelming to folks unfamiliar with the process.

According to OVB Vice President, Consumer Lending Greg Phillips, refinancing a loan whether it be a home mortgage, auto or personal loan, simply means to take the existing balance owed and restructure that under new terms.

“This may include cash out to make a larger loan or only refinancing the current balance,” Phillips said, adding that there are many reasons as to why someone should consider refinancing. “You could refinance to a better interest rate to shorten the loan term to pay it off sooner. You could refinance to borrow additional funds for debt consolidation, home improvements, education or just personal use. Financially speaking, a refinance can be good for the reasons listed above.”

While refinancing can be beneficial, Phillips also stressed that each case is unique and in some situations it might not be the best course of action to take.

“For example, if you are refinancing a home loan to consolidate debts and choose a longer term loan, you will not want to pay off an auto loan in this scenario unless absolutely necessary. Auto loans are secured by a depreciating asset and would need to be replaced. If circumstances arise, you may have to take another auto loan after you have refinanced your current one to long-term debt,” he said.

To give a clearer picture of what exactly refinancing entails and how it can impact your finances, Phillips answered the following commonly asked questions:

  • Are there different types of refinance available? With regards to mortgage loans, you can refinance the balance or take cash out when equity is available to do so. You could also refinance a second mortgage loan for the same reasons, as well as any other consumer loan.
  • What do I need to qualify for a refinance? Most loan types, including mortgage loans, require the same documentation that you needed when you initially made the loan. You will need to verify your streams of income via pay stubs, tax returns and award letters. You will need to complete an application; have credit underwriting performed by the financial institution; and if the loan is secured, a collateral valuation is performed, such as an appraisal for a home loan.
  • Is the cost involved with refinancing typically offset by the new loan payments? I will stick with mortgage loans on this question – the cost to benefit ratio is usually good if you are sufficiently lowering your interest rate or shortening your loan term, which means you will pay off the loan sooner and thus save on interest in the long term. There is no magic formula to this as each case is different. For example, you may lower a rate on a loan and get a lower payment, but if your plan is to sell your home in the short term, you would not recoup the cost to refinance that loan. The best answer is this: ask yourself “What is my long-range goal with the home?” When you answer that, have your lender run some options to see if you will still be able to benefit from the refinance.
  • When is it a good time to consider refinancing? When interest rates are low and if your current loan was made when rates were higher. Right now is actually a good time to refinance as mortgage rates are at or near historic lows. Auto or other loan rates may be lower as well, but you have to consider how your car has aged. Usually rates are higher as that type of collateral ages.
  • What do you need to bring with you to the bank to start the refinancing process? You don’t really need anything other than your driver’s license or proof of identity to apply. However, to get a loan to underwriting, in the case of a mortgage, you would need the following: your last two pay stubs; your last two years of tax returns with supporting documents; and awards letters if you are on a fixed-type of income. You will also need property information, including insurance documents, legal description or deed to the property.

Phillips stressed the importance of considering your situation and what you want to achieve from the refinance before deciding to start the process.

“The best place to start is to contemplate what your goal would be for the refinance. Once you have a good idea of that, start a conversation with a lender regarding the benefits and terms of a new loan. Those conversations can be as general and detailed as you would like. Most loan officers are willing to discuss the option you might be thinking of if it is available to their institution or they may have a solution/option that is a better fit for your goal,” Phillips said.

If you are looking to apply for a home loan or other loans, OVB community bankers are readily available to assist. For more information, visit our online Mortgage Center. For updates on banking news, be sure to like and follow OVB on FacebookTwitter and Instagram.

2 Responses to Refinancing 101 with OVB’s Greg Phillips

  1. Pingback: Don’t be haunted by your finances | Ohio Valley Bank

  2. Pingback: Financial savvy tips to take into 2021 | Ohio Valley Bank

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