Thinking about refinancing your mortgage or car loan? If so, there’s a lot you need to consider before signing on any dotted lines.
In this post, we’re addressing many of the most common questions we get or that people like you are searching online.
General Refinancing FAQs
Before we get into auto loans and home loans specifically, let’s hit on loan refinancing in general.
Why Might You Want to Refinance?
People look to refinancing for a host of reasons. They may want to:
- Lower their monthly payments
- Reduce the amount of their outstanding debt obligation
- Lower their overall cost of purchase
- Pay off their loan sooner
- Improve their credit score
- Revise the terms — like loan duration — of their loan
- Switch lenders
- Change to a different type of loan
- Get cash out
If one or more of these points speaks to you — mortgage or car loan refinancing may be a good fit.
What Loans Can Be Refinanced?
You already know that car and home loans can be refinanced. But is that all?
Nope! The following types of loans can be refinanced:
Of course, whether or not you can refinance one of these loans depends upon your personal eligibility.
Who Can Refinance?
Just as lenders won’t give a new loan to just anybody, they won’t refinance an existing one either. Qualifications vary based on the lender and the loan types in question.
But, here are some of the things a lender will look at when evaluating your refinance application:
- Your credit score. Credit worthiness can indicate how likely you are to repay your loan and influences the options and rates a lender may offer you.
- Your other debt obligations (DTI). Lenders want to see that you aren’t stretching yourself too thin, possibly to the extent that you wouldn’t be able to pay off the new loan.
- Your equity stake. The more of the car or home that you own outright (vs the portion owned by the lender), the better.
- When you took out the original loan. Sometimes there are minimum amounts of time you have to wait before you can refi.
- Other personal factors. This is a miscellaneous category that includes your income, employment status, other assets, etc.
How Long Does Refinancing Take?
There are several steps in the refinancing process. While the exact tasks and flows are different for each lender and loan, you can expect the experience be something akin to:
- Determine why you want to refinance your loan.
- Research lenders and loans that align with your goals.
- Get rates and fees from the lenders on your shortlist.
- Compare the costs of refinancing with each lender/loan.
- Pick the best-fit lender/loan and apply for the refi loan, with all the required documentation.
- Wait while your loan application is evaluated and decided upon. (Respond to any questions that arise ASAP!)
- If your loan is approved, the new loan will be underwritten.
On average, the whole end-to-end process can take about a month to a month and a half. You can help yourself be on the shorter end of that time horizon by getting pre-approved for a loan, gathering and submitting all your paperwork and supporting materials when applying, and working with a lender that already knows you.
How Much Can You Save when Refinancing?
There are way too many variables — loan type, interest rates, length of loan — to give a simple or direct answer to this. Assuming you stick with a refi loan for the same number of payoff months and can get better rates than your current loan (and the fees you pay to refi don’t negate those savings), you’ll probably come out ahead.
Perhaps the best way to explore the possibilities is to use a loan calculator. Try different combos of loan amounts, durations, and rates. Then stack that against your existing loan.
How Does Refinancing a Car Loan Work?
Car loan refinancing is fairly straightforward. You’re essentially replacing your original loan with a new (and hopefully improved!) loan.
When your refi auto loan comes through, you start paying it each month instead of the old loan.
Learn More about Car Loans
We have several posts on the details of vehicle loans and refinancing and recommend reading them for extra granularity.
What Questions to Ask when Refinancing Your Mortgage?
Your hearth and home is hanging in the balance when you refi your home loan. So it’s critical that you know what questions to ask throughout your search and application for a new mortgage.
At the very least, you’ll want answers to the questions below.
What Do Home Appraisers Look For When Refinancing?
Appraisers look at the size and specs — like number of bedrooms and bathrooms, square footage, etc. — of your home as well as its condition. They’ll check to make sure systems (e.g., HVAC) are working and for hazards (e.g., lead paint).
The appraiser’s job is to ensure that the value of your home is greater than the amount of the refi loan being sought.
When is My First Mortgage Payment Due after Refinancing?
This depends on when you close on your new home loan. Mortgage payments are usually due on the first of the month, but the first payment on a new loan isn’t typically due for 30 days post-closing.
While it may seem like you could end up skipping a mortgage payment for a month — you aren’t. It’s accounted for in the grand scheme of things.
How Soon After Refinancing Can I Buy Another Home?
In many cases, you’ll need to wait at least six months. However, if you meet all the criteria and jump through all the hoops, you may still be able to buy a second home (e.g., investment or vacation property) while going through the refi process.
Again, lenders are keen on making sure you have the capacity to handle the debt you take on.
How Long Should You Stay in Your House after Refinancing?
As long as you don’t have an owner-occupancy clause in your refi mortgage, you’re free to move anytime.
An owner-occupancy stipulation could require you to live in your home for a period of time after closing — like six to twelve months — before you can sell or rent it. This isn’t a hard-and-fast rule and may be worth negotiating over.
Learn More about Mortgages
If you want to learn even more, check out these resources. They go into finer detail on home loan fundamentals.
Does It Make Sense to Refinance through a Credit Union?
Whether you’re refinancing your car or home, oftentimes the answer to this question is a resounding “Yes!” Credit unions tend not to be motivated by corporate profit — they’re driven by what’s of interest to its members.
As a member of a credit union, you may be able to access:
- Lower interest rates
- More advantageous terms and conditions
- Better service
- Easier and quicker application, processing, and approval
- Lots of perks like Valley Credit Union’s Skip-a-Payment and Debt Protection programs
These elements can really impact your decision to refinance an auto loan or mortgage and your overall financial outlook.
And, don’t forget — you may have other, additional, benefits of credit union membership. For example, VCU pays dividends to its members!
Who Can Help Me with My Refinancing Needs? VCU!
Refinancing can be…confusing, tedious, frustrating. At Valley Credit Union — we completely understand.
That’s why we’re here for you. Our talented and caring team is ready and able to help remove much of the overwhelm and frustration that’s inherent to refinancing. In fact, we’re happy to assist you so you can better manage your broader financial well-being.
When it’s time to take the next step — be it refinancing your home loan or auto loan, opening a checking or savings account, or getting a credit card — VCU’s at your service.
Contact us today!
About the Author
Justin Roberts, Vice President of Lending
Justin Roberts is our Vice President of Lending and has been in the financial industry for over 18 years. He is an Oregon State University Graduate and has just completed Western CUNA Management School. When he is not focused on helping the members at Valley, you will find him coaching his two sons and volunteering his time to help develop the youth in our communities through sports.