Refinancing your mortgage is an option most homeowners will think about at some point. As to whether credit unions refinance mortgages, the answer is yes. Whether it’s worth it depends on a few factors.
First, as you approach the process, you should know your credit score. Like any loan, refinancing a mortgage is going to mean taking out a new loan, and your credit score will play a direct role in the interest rate you’re offered.
Second, consider the reasons you might refinance. Are you looking to lower the interest rate on your current mortgage? Are you hoping to tap into some built-up equity? Will you benefit in the long run by refinancing and getting a shorter mortgage term? When you know what your goals are in making a choice like refinancing, you’ll be more clearly able to communicate with lending associates at a community credit union or other financial institution. Answering these questions will also help you reflect on how “worth it” the process is for you.
What Does It Mean to Refinance a Mortgage?
If your mortgage is already held through your local credit union, all it takes to get the process started is to call them and initiate the process. Refinancing basically is a way for people to take out another loan on their home, where the second loan (and all rates and fees) supersedes the initial loan.
It’s done for a handful of reasons, but most people are looking to lower their monthly payments by getting a “new” loan with a better interest rate. Sometimes, people want to be able to pay off the loan more quickly and opt to shorten the term of their home loan to a 15-year instead of the initial 30-year term. Some people want to take advantage of some of the equity or “value” that they have built into their homes. This may be so they have some money on hand for a larger purchase or for covering the costs of renovations, refurbishing parts of the home, or other reasons.
It’s important to note that when refinancing, you don’t have to work with the current holder/servicer of your mortgage. It’s possible to refinance with another lender who is licensed to do so in your state.
When and Why Should You Do It?
- Reducing the monthly loan payment.If there are lower interest rates available than what you currently have on your loan, there’s an easy way to cut down the monthly payment. Some opt to shave a portion off by extending their 15-year to a 30-year term. Although the monthly payment is significantly less expensive, the major drawback is that you will then be paying back more interest over time.
- Access the equity in your home.If you choose to refinance and borrow more than you currently owe on the loan, you get a check back for the difference. This cash-out refinance measure usually means that people will not only have received a lower interest rate, but also a chunk of change that can be used for bigger purchases or reinvested into the home for the sake of renovations or maintenance.
- Pay down the loan more quickly.If you refinance and go from a 30-year term to a 15-year term, you can pay off the loan in half the time. This also means that you will pay less interest over the course of time. The only caveat here is that the monthly payment will go up.
- Go from an adjustable- to a fixed-rate loan.If you have an adjustable interest rate (which can go up over time) on your first mortgage and would like to lock in a fixed rate, you can do so when you refinance. Transitioning from an adjustable rate to a fixed one can be an additional way to provide stability when you would prefer consistent and non-fluctuating payments.
Why a Credit Union for Refinancing a Mortgage?
Credit unions offer numerous benefits to their members. One distinct advantage is the lower interest rates on home loans, credit cards, auto loans, and most of the loans they offer. Credit unions are associated with lower interest rates, better customer service, more lending flexibility, and overall better experience.
If your credit score isn’t perfect, there’s a possibility that a credit union can help you in more ways than a traditional lender or bank could. This is especially important for individuals who may be looking for a way to re-establish and rebuild their financial fitness and improve their credit score.
Although they offer some of the best rates, it may take a little leg work to find a credit union that offers refinancing mortgages. It can be well worth the effort and you can find credit unions through the national credit union search engine.
What If I’m Not a Member of a Credit Union?
Becoming a member of a credit union isn’t as hard as people may think. If you live in the vicinity of a credit union, or if your employer or union uses a credit union for their payroll, you may already qualify to join. When you join a credit union, you “own” a share of the institution and also gain a voice to discuss issues and vote on credit union policies.
Although credit unions are commonly perceived more positively than other institutions, not all are created equal. They will offer different rates, so be sure to call around and see what information you can gather before starting the process.
After finding a credit union to work with (and joining if you’re not already a member), you’ll need to fill out their refinancing forms and get a few essential documents together. You’ll need copies of your two most recent pay stubs and an outline of your income tax returns for the previous two years. They will run a credit check and get an appraisal of your home. Generally speaking, the best (read: lowest) interest rates are for people who have a 740 or better on their FICO credit rating.