End of Year Mortgage Refinancing Checklist

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As the year winds down, most of us take a moment to reflect on things like our goals, our budget, and what we can do differently in the months ahead. For homeowners, that often includes taking a fresh look at your mortgage. 

With all of that reflection under way, you may be wondering if now is a good time to refinance your mortgage. Perhaps rates have shifted since you closed on your home, or your financial picture looks different than it did a few years ago. 

Depending on your situation, refinancing might help you start the new year on stronger financial footing with a potentially lower monthly payment, reduced interest costs, or even cash available for upcoming projects or expenses. 

But before you get ahead of yourself, it’s important to enter the mortgage refinancing process with a clear understanding of your current situation and your goals. In this article, we’ll give you a jumping-off point for your year-end refinance checklist.

Review your current mortgage terms

Before you start applying for a refinance, you should make sure you understand the state of your current mortgage. This step helps you see where you stand and how—or if—refinancing can make a difference. To get started, you may want to refresh yourself on: 

• Your current interest and loan type. Is your mortgage fixed-rate or adjustable-rate? Whichever it is, you’ll want to then compare your rate to current market averages. Note, your rate on a refinance may not match the averages you’re finding, but they can give you an idea of the potential impact of refinancing your mortgage.  

• Your remaining loan balance and term. How many years are left on your mortgage? Refinancing might help you shorten your loan term. 

• Your monthly payments. Look into how much of your payment goes toward principal versus interest. Sometimes, refinancing can lower monthly payments for borrowers, too.  

• Your home equity. Having more equity can be a good thing when applying for refinancing. It might impact your new loan terms, and, depending on the type of refinance, it may give you access to cash.  

• Whether or not your mortgage has prepayment fees or penalties. Some loans include early payoff penalties, so understanding these up front can prevent an unfortunate surprise later. 

As you go through those reviews, gather up and organize your most recent mortgage statements, property tax documents, and other relevant information. It will help you be more prepared when you work with a loan officer.

Try to gauge your credit and debt-to-income (DTI) ratios

Once you understand your current mortgage, the next step is to take a closer look at your credit profile and overall financial picture. As they did with your original mortgage, these factors play a key role in determining your refinance options and the interest rate you may qualify for. 

Now, credit scores and histories definitely matter for most loan types, but they are not everything. Lenders will review yours to get an idea of how you manage debt. Before applying for a refinance, it may be helpful to: 

• Review your credit report. Once every twelve months, you can find your report from Experian®, Equifax® and TransUnion® for free and with no impact on your credit. If you haven’t gotten your free report in the past twelve months, you can do so here. 

• Address any errors or outdated accounts that could affect your score.  

• Avoid taking on new large debts before refinancing.  

Then, you’ll want to see what you can learn about your debt-to-income (DTI) ratio. Your DTI ratio compares what you owe each month to what you earn. Lenders use that number to assess how comfortably you can manage a new mortgage payment alongside your other obligations. Each lender and loan type may have different qualifying ratios for DTI, so be sure to check with your lender.

Compare interest rates and loan options

Once you’ve reviewed your current mortgage and financial situation, you can start exploring what’s available in today’s market. It’s possible that even a small change in interest rates or loan structure can have a meaningful impact on your long-term finances.  

So, what kind of impact are you hoping to make? Consider whether you’re trying to lower your monthly payment, shorten your loan term, or even access cash from your equity to fund a major expense. Those goals will guide your next step.  

With them in mind, consider what type of refinance might help you get there. There are many different kinds of refinancing products to learn about. But these are three more common kinds of mortgage refinancing products: 

• Rate-and-term refinance: Replaces your current mortgage with a new one that has different terms, typically to adjust the rate, payment, or loan length. 

• Cash-out refinance: Allows you to convert part of your home’s equity into cash, which can be used for expenses like home improvements or consolidating higher-interest debt. 

• Streamlined refinance: Some loan programs, such as Veterans Affairs (VA) or Federal Housing Administration (FHA), offer options with reduced documentation if you already have a certain type of mortgage.  

Remember that rates can fluctuate based on market conditions, your credit profile, and the loan program you go with. Comparing offers from trusted lenders can help you get a better picture of what may be available to you.

Prepare for closing costs

As you compare loan options, it’s important to remember that refinancing, like any mortgage, typically comes with some associated costs at closing. These can vary based on factors such as your loan type or the terms you choose.  

Basically, although refinancing your mortgage might reduce costs in the long term, it is not cost-free. Before you apply, ask your loan officer to walk you through the types of costs you can expect for your refinance scenario.

Start the New Year strong

As the year comes to a close, putting together your year-end refinancing checklist can be a thoughtful way to prepare for the months ahead. Even small adjustments, like lowering your rate or updating your term, can make a meaningful impact on your finances over time. 

However, refinancing isn’t the right choice for everyone, but it’s worth exploring if your goals or circumstances have changed. By taking time to review your loan details, gather your documents, and ask questions, you’ll be prepared to make an informed decision that fits your goals and needs.