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How to Refinance Your Mortgage

Mortgage rates are at an all-time low leaving many homeowners wondering if now is the best time to refinance their mortgages. Read on to learn how to do it.

The historically low mortgage interest rates of under three percent have left many Alabama homeowners wondering if they should refinance their mortgage. While pursuing a mortgage refinance now could provide several benefits, it is important to understand the benefits and weigh the pros and cons.

Why Do Homeowners Refinance Their Mortgage?

When you refinance your mortgage, you take out a new loan to pay off the old one. This may be an appealing option to you for many reasons, including:

  • Locking in at a lower interest rate

  • Shortening the number of years remaining to pay off your mortgage

  • Switching mortgage interest types, such as going from an adjustable rate to a fixed rate

  • Taking advantage of the equity you have built up in your home to consolidate debt, manage an emergency, or pay for a larger purchase

A common misperception among homeowners is that refinancing does not include the same amount of paperwork or fees associated with an original mortgage. But, from a lender’s perspective, refinancing is a whole new loan. That means you should prepare to complete and submit significant paperwork and pay application, appraisal, and title search fees at a minimum.

Who Should Not Pursue a Mortgage Refinance?

The Federal Reserve Board agrees that refinancing a mortgage to receive the above benefits can make sense for a lot of people. However, it advises homeowners who meet the criteria listed below not to refinance their mortgage.

  • Homeowners who have held their mortgage for many years: Refinancing late into a mortgage loan requires you to start over with amortization. That means most of the monthly payment for the refinanced loan would go toward interest and not homeowner equity.

  • Homeowners who plan to sell their home within the next few years: When you move within a few years of completing refinancing, the savings you achieve with lower monthly payments may not be at the break-even point yet of covering the expenses associated with the refinancing.

  • Homeowners whose current mortgage has a prepayment penalty: If your original mortgage contains a prepayment penalty for paying off the mortgage early, it will take you longer to reach the break-even point to benefit from refinancing. Lenders consider refinancing as equal to early repayment.

Check Your Credit Report Before Applying for a Mortgage Refinance

How well you manage your existing credit and your current credit score are big factors in whether you obtain approval for a refinancing loan. Credit reporting agencies assign a score of 300 to 850, with higher scores representing better credit management. Each of the following factors has a significant impact on your credit score:

  • Number of recent inquiries from other creditors

  • How long you have maintained a credit history

  • Types of credit accounts you hold such as credit cards, car loans, or mortgages

  • Payment history on current accounts

  • An outstanding balance on current accounts

Under the Fair Credit Reporting Act (FCRA), consumers can receive a free copy of their credit report from each of the three reporting agencies once a year. Due to the financial difficulties faced by many people during the COVID-19 pandemic, consumers can check their credit weekly at no cost through April 2022. You can obtain your Transunion, Equifax, or Experian credit report at AnnualCreditReport.com.

It is important to obtain your credit report as far in advance as possible to ensure that it does not contain errors. If you do spot mistakes, contact the credit reporting agency in writing immediately. The FCRA requires credit reporting agencies to respond to requests for corrections within 30 days and provide a written explanation if the agency disagrees that it reported any of your credit information in error.

Obtaining your credit report early in the refinancing process also gives you time to work on increasing your credit score. Here are some steps you can take in addition to correcting any errors:

  • Request higher credit limits

  • Keep balances low

  • Pay all bills on time

How to Find the Best Rate and Term for a Refinance Loan

You should prepare to spend time researching lenders, rates, and loan terms to find the one that best meets your needs. Click here to learn more about Listerhill's mortgage refinance options. Since mortgage rates can change daily, be sure to lock in the lowest rate you can find as soon as you can. A rate lock does not obligate you to follow through with the mortgage refinance, but it does guarantee the interest rate for at least 30 days should you decide to refinance.

Determining your percentage of home equity is also a good idea since lenders are more willing to offer generous terms to applicants who own larger percentages of their homes. To calculate equity, look up the current listing value of your home on an online home price estimator site. The next step is to deduct the amount you still owe on your mortgage from its current value.

The Mortgage Refinance Application Process

The good news with applying for a refinancing loan is that the process is faster and more streamlined than ever. You can complete the application itself online and then upload and submit the required documentation. Examples of documentation you will need to include pay stubs and bank statements.

Your lender will then verify all the information you submitted and remain in close communication with you throughout the underwriting process. If approved, you will attend a closing or sign documents online to close your old loan and open your new one.

Listerhill Credit Union is happy to answer any additional questions you have about the refinancing process. Just reach out to us or click below for more information.

Learn about the costs associated with a mortgage refinance

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  • How am I eligible for membership at Listerhill if I don't live near a branch?

    You can become eligible for membership at Listerhill anywhere in Alabama if you join the Alabama Consumer Council or the Athens State Alumni Association. In Tennessee, you can also become eligible for membership if you join the Athens State Alumni Association. This membership is initiated at no cost to you and doesn't require any setup on your part outside of the normal application process to become a member of Listerhill.

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  • The Great Giveback Official Rules

    1. Eligibility: No purchase or obligation necessary to participate and win. All participants must be 19 years of age or older at time of contest participation. Employees of Listerhill Credit Union are not eligible to register for the contest.

    2. How To Enter the Contest: All Listerhill members who have consumer loans in good standing, (subject to limitations below) are automatically entered. Anyone who takes out a new loan with Listerhill Credit Union, or refinances a loan from another lender with Listerhill Credit Union (subject to limitations below) will automatically be entered to win. Limit of one entry per loan.

    NO PURCHASE NECESSARY: To enter the contest without a loan, send a self-addressed, stamped envelope to: Listerhill Credit Union, P.O. Box 566, Sheffield, AL 35660, Attn: Great Giveback Contest Entry. Limit one entry per person. Written entries must be received no later than July 3, 2021.

    Listerhill Credit Union will not be responsible for incomplete, lost, late, misdirected or illegible entries or for failure to receive entries. All entries become property of Listerhill Credit Union and none will be returned. Any questions regarding the number of entries submitted shall be determined by Listerhill Credit Union in its sole discretion, and Listerhill Credit Union reserves the right to disqualify any entries by persons determined to be tampering with, violating, or abusing any aspect of the contest.

    3. Contest Entry Requirements: In the event the Credit Union, in its sole discretion, determines that any Entry contains content that does not comply with these Official Rules or does not otherwise comply with regulatory guidelines, Credit Union reserves the right to disqualify the entry.

    4. Determining the Winner: A Credit Union employee will select at random four (4) $500 winners (one per day July 12-15) and one Grand Prize Winner from all entries received on July 16, 2021. You do not have to be present to win.

    5. Prizes: $500 Cash Prize: the Credit Union will award four (4) members with $500 cash each. Grand Prize: The Credit Union will pay up to $25,000 toward your loan with Listerhill Credit Union, or combination of loans. No loan payments will be made to loans with any other lender. No cash equivalent provided, and the total prize amount may be less depending on the outstanding amount of loan balance(s) with Listerhill Credit Union. In no event will the prize awarded exceed the total amount of the winner’s outstanding balance of qualifying loans with Listerhill Credit Union. Federal, state and local taxes are the sole responsibility of the winner. IRS regulations require the Credit Union file a 1099 on behalf of the winner.

    A Credit Union employee will call the prize winners and the prize winners will be called up to five times during regular business hours at number provided on entry form and will leave no messages. Failure to reach winner during these calls may result in disqualification of winner, forfeiture of his or her interest in all prizes, and selection of a substitute winner drawn from the drum. Winner will be required to schedule a time, at least 48 hours in advance, to visit Listerhill Credit Union, located at 4790 2nd Street, Muscle Shoals AL, 35661 in person, during regular business hours within seven (7) days of being notified to claim prizes by providing proof of eligibility for prize won and completing and signing an affidavit of eligibility and a liability and publicity release. Failure of any Winner to timely contact the Credit Union, visit the above Credit Union office in person and sign and return any required affidavit and release, or to claim a prize or comply with any term or condition of these Official Rules, will result in drawing Winner's disqualification and the forfeiture of his or her interest in the prize. Winners may waive their right to receive prizes. Prizes are non-assignable and nontransferable. No substitutions allowed by winner.

    6. To be eligible to win, all loans must be in good standing (not more than 30 days past due at the time of drawing. Eligible loans are limited to auto loans (no indirect dealer loans), personal loans (no loans secured by real property, such as mortgages, 2nd mortgages, and Home Equity Lines of Credit) and recreation loans made to consumer borrowers (not business or commercial loans).

    6. Participation. By participating, entrants agree to be bound by these Official Rules and the decisions of the Contest. Except where prohibited, acceptance of any prize constitutes winner's consent to the publication of his or her name, biographical information and likeness in any media for any commercial or promotional purpose, without limitation the Internet, or further compensation. Prizes not won and claimed by eligible winners in accordance with these Official Rules will not be awarded and will remain the property of the Credit Union.