What All Goes Into Refinancing a Home?

The home I live in is totally paid for; I inherited it when my dad died. I have been kicking around the idea of getting it re-financed to do a bill consolidation, pay everything I owe off & put it into one (hopefully) smaller payment.

I have never done anything like this. Just asking some general questions here- would the house need to be inspected? Would this generally be a good idea? Home loans, as I undestand it, are pretty much less interest than the credit cards & personal loans I have. About how long would the process take?

I appreciate any advice and info you can give me! :slight_smile:

Can a paid-off home be refinanced? I know you can do a reverse mortgage, or simply take out a loan against the home as collateral.

I’m not sure the term is “re-” financing, since you are arranging a first mortgage.

The requirements are up to the lending institution. A home inspection isn’t usually required, but an appraisal (at your cost) will undoubtedly be needed.

If the title is clean (no liens or judgments) and the amount you want to borrow is a small fraction of the appraisal (50% or less), you should have no problem. Most banks and savings can process a simple mortgage like this in 30 days or less.

Interest rates in the US for primary mortgages for personal home residences (not second homes) are in the 4% range right now, +/- .5%. It depends on the length and other factors.

Yeah, it wouldn’t be a* refinance*, it would be a mortgage. They’d want 2 to five years of income tax returns, verification of employment, verification of insurance, property tax info, and perhaps an inspection. Certainly an appraisal. I’d guess 30 to 60 days if you had nothing too complicated. You probably could get a rate in the low 4% range. Maybe better.

You could also get a Home Equity Line of Credit, that might be easier. Perhaps a slightly higher interest rate, but you could pay it down and then tap it again if the need arises. Like all debts, the sooner you pay it off the better. (how’s that for generalities?)


Before you take euity out of your house to pay down debt, stop and figure out why you have so much debt. I have known people who mortage their home to pay down credit card debt. But in a few years they had reran the credit card debt back up and refinanced again. And finally they could not pay the increasing debt and the mortage, and could not refinance again. Ended up selling the home to pay down someof thedebt and staarted to rent.

I do not believe money should be taken out of your home for any reasonbut for a good investment that will make money. And a new car is not an investment it is stuff.

What kind of money are we talking about here? I’d take out an unsecured line of credit at a low interest rate before I’d put my house on the line for a small(ish) amount of money. If you default on a mortgage, the bank gets your house; if you default on an unsecured line of credit, they don’t.

Well, let’s see… Maybe $4000 in credit cards, a loan of maybe $11,000. Under $20K all together, I’m sure. I am not at all sure about any of the terminoogy… I know re-finance wasn’t right, wasn’t sure what to call it. Just trying to lower my payments enough to be comfortable. I am having no problems MAKING the payments, but… shrug

Home equity sounds like it might be the best of the alternatives tho. My house is worth at least $70K.

There is a chance that I will be getting a decent raise at work, with some changes they are making, and if that happens, I won’t have to worry about it, anyway.

We’ll see.

Why on earth would you consider exchanging unsecured debt for secured debt? If you default on the CCs, you get a credit score hit. Default on the mortgage and you lose the house.

Mortgage Rates: 4%
(non-promotional) Credit Card Rates: >20%

Seems pretty clear to me, assuming you plan on (and have a realistic plan for) paying it off rather than defaulting.

Seconding this. Remember, if you fall behind on your bills, no one can take anything away, but if you secure your bills to your house and fall behind on that, you could find yourself out of a house.

You’ve got no mortgage/apartment payment so you’re already miles ahead of the vast majority of the people in debt, just keep working on paying everything down. Also, if you’re the type of person who pays a little bit of debt down and runs if back up, think about what’ll happen if you ‘pay’ it all down with a refi and then run it’ll back up…now you’ll have double the debt you have now. Sometimes, just having the debt is what keeps you from incurring more.

If you don’t already do it, I’d suggest you write all your debtors down in one spot with what you owe them and update the totals each month (or as you make a payment to them). Having everything in one spot makes it much easier to get them paid down since you don’t feel like you’re just tossing your money at nothing. Seeing the progress right there in black and white makes it more quantifiable.
Even better, go invest in Quicken, put EVERYTHING in there, every credit card, every bank account, every savings account etc. I don’t see why you couldn’t even put individual bills in there that will take time to pay down. It’s so much easier with everything in one spot.

Also, if you do go with financing, I’d do a HELOC so you can just borrow what you need and not what your entire house is worth. Also, if you need it again, since it’s a line of credit, you can just go and take it without having to ask anyone. You can use it like a credit card.

What kind of loan is the $11,000 loan? Is it something that is not likely to happen again (say, student loans, and nobody’s planning to go back to school), or is it something that is likely to recur (say, medical debt for a chronic or recurring problem)?

Same question about the credit card debt. Is it from a one-time expense that is not likely to recur, or is it from ongoing expenses or expenses that are likely to happen again?

What’s the housing market like in your area? This will give you an idea of what the value of your house is likely to do in the next few years. If the value of your house is likely to go down, don’t take a home equity loan. You get in real financial trouble if you can’t make your mortgage payments and can’t sell the house for at least as much as you owe on it. There is no guarantee, anywhere, that house prices always go up. Sometimes they go down. See Las Vegas, Florida, or the Central Valley east of San Francisco for examples.

I wouldn’t take a home equity loan to pay off debt, unless I really needed to and the debt was from a one-time thing that wasn’t likely to happen again. If the debt is because you’re spending more than you’re bringing in, I would instead try to find a way to rectify that situation. The solution will probably involve spending less money on something.

Danger! Danger, Will Robinson! Don’t count on this for any financial decision making at least until it’s extremely unlikely that it won’t happen. Salaries go down as well as up, and people do lose jobs and have trouble finding new ones. Your financial planning should take those realities into account. Don’t assume you’ll always have a job making at least as much as you do now, because in the real world there is no guarantee of that.


I don’t know what the OP’s credit looks like but it would have to be pretty lousy for a credit card to be >20%.
Looking at the Chase Freedom card (first one I thought of), it says that it’s 12.99%-22.99%. +20% is on the very high end.

I’d rather work off $4000 on credit cards then secure it to my house.

If your credit is not good, you’re probably not going to get a mortgage at 4%. The ads make it sound like you will, but I’d bet you won’t. They do check your credit scores as part of the process, and the rate you’ll actually get is dependent on your credit scores. Mr. Neville and I are in the process of refinancing our mortgage, and our credit scores featured quite prominently on the ream of paperwork we had to sign. Not to brag, but our credit scores are good, and we got a fixed rate of 3.875%.

If you went with an adjustable rate mortgage or one with a balloon payment, you might get lower interest. But I wouldn’t do that. Interest rates are at or near historic lows right now. You want a fixed rate loan. Mortgage rates haven’t always been this low. In the 80’s, they went as high as 15.5%. I’d bet they won’t always be this low, either.

You will have to provide a lot of verification of financial stuff. Bank statements, pay stubs, retirement account statements, that kind of thing. The days of just stating your income on a home loan and not having to verify it are over.

The last time we refinanced, they did send someone out to do an assessment on our house. This time, we didn’t have to do that, because we’d had one done recently. They were content with doing an assessment from outside the house, though.

OK, maybe >20 isn’t the norm, but certainly >12, which is more than triple a mortgage rate. I’ve got pretty stellar credit and just refinanced at 4%, but my main credit card is almost 15%. (I pay in full every month, so this doesn’t matter to me, but there it is.) Again, if you are going to pay it off, you’ll save a ton of money paying something back at 4% vs. 13%. If you’re not going to pay it off, then who cares? Go ahead and default! (and face the credit score consequences) But I don’t think the OP is looking to do that. He’s looking to pay it off, just with a smaller payment (and probably less interest than he’s currently paying.)

The question of whether you can really pay it off or not is a completely different (and more fundamental) one.

My VISA card is around 20% - which is why I don’t carry a balance on it. My line-of-credit, however, is around 6%, so that’s what we use if we’re going to carry any debt. Consolidating your debts at the lowest interest rate you can get is usually a good idea; changing unsecured debt for secured debt usually isn’t.

Something else to think of: fees for such mortgages can be steep - several thousand dollars (there’s a lot of paperwork). So - while you’d be getting a lower rate, once you figure in all the fees, you’re likely to spend at least as much if not quite a bit more, than if you’d kept the current loans / credit cards. Better to look for an unsecured consolidation loan (which would probably lower the rates on the credit cards).

Now, having a HELOC in place isn’t necessarily a bad thing in general - what if the house needs a new roof? Some banks or credit unions even have HELOCs that match the current prime rate, with little to no up-front costs.

But I agree, it’s not a great idea to turn unsecured “screw up your credit rating but nothing more” CC debt into “lose your house” home debt.