A lot can happen in 30 years.
Refinancing gives homeowners the freedom and flexibility to adjust their mortgages to fit changing financial and personal needs.
What's in this article?
Condo refinancing works similarly to other types of refinancing but with a few additional considerations and requirements.
Read on to learn the steps to a condo refinance, including the potential challenges and tips for a smooth process.
Does a condo refinance differ from other types of homes?
Refinancing a mortgage involves replacing your current mortgage with a new one that has different terms and conditions, including a lower interest rate or an adjusted duration.
The new one repays the old one, and the homeowner makes payments based on the new provisions.
The main difference between refinancing a condo and another type of property is the role of the condo owners association (COA).
What is the condo owners association?
Condos are part of a larger community governed by a COA, which is similar to a homeowners association (HOA).
The COA adds another layer of financial considerations during the refinancing process because lenders must evaluate the association to make sure it meets certain criteria, including:
- Reserve funds
- Owner-occupancy ratios
- Overall condition of the property
These additional considerations ensure that the condo owner and lender make sound financial decisions.
Ready To Take Your Next Step?
Why should you refinance your condo?
Refinancing is a strategic financial move that can improve your monthly budget and loan terms/conditions and help you access equity.
Let’s look at the most common reasons condo owners choose to refinance.
Secure a lower interest rate
Refinancing allows condo owners to access a more favorable interest rate.
If rates have dropped at least 1% to 2% since you purchased your condo, refinancing can help you take advantage of these lower rates.
Reduce monthly mortgage payments
There are two main ways a borrower can reduce their monthly mortgage payments by refinancing:
- Get a lower interest rate
- Extend the loan term (or duration)
Refinancing can help you free up funds for other needs such as additional savings or paying down debt.
Switch to a fixed-rate mortgage
Adjustable-rate mortgages (ARMs) have an initial lower fixed-rate period, which can make payments more affordable in the early years of the loan.
After the fixed-rate period ends, rates adjust based on market conditions, often resulting in higher payments.
Refinancing to a fixed-rate loan allows condo owners to lock in a stable, predictable rate along with an unvarying monthly payment for the remainder of the loan term.
Tap into equity
A cash-out refinance allows borrowers to access the equity in their condos.
With this type of refinance, the borrower takes out a new, larger loan and receives the difference between the older loan and the newer loan in cash. The funds can be used for any purpose, including debt consolidation, large purchases or investments.
Shorten the loan term
Condo owners can refinance to a shorter or longer term length, each serving different financial purposes:
- Shorter terms: Help the owner pay off their mortgage faster and reduce the amount of interest paid over the life of the loan (such as refinancing from a 30-year mortgage to a 15-year loan)
- Longer terms: Can lower your monthly payments and make condo ownership more affordable
Understanding your specific goals and working with a knowledgeable lender can help you decide which refinancing option best suits your needs.
Step by step: How to refinance your condo
Refinancing is a rewarding process when approached with careful preparation and understanding.
Let’s walk through the steps to refinancing your condo to achieve a positive outcome.
1. Determine your financial needs and goals
What is your desired outcome? Are you hoping to lower your interest rate, access equity or shorten your loan term?
Determine your reasons for refinancing so you can help your lender enable you to find the best solution.
2. Apply for a loan commitment (and lock in your new rate)
Once you’ve decided why you want to refinance and what you want to accomplish, apply for Compass Mortgage’s unique Get Committed® program.
Get Committed® allows borrowers to lock in their new interest rate and complete most of the loan process ahead of time by acquiring a loan commitment.
The result is a smoother and more streamlined refinance process.
3. Gather the necessary documents
You can make the process easier for yourself and your lender by preparing your required documentation ahead of time, including:
- Proof of income
- Bank statements
- Current mortgage statements
- Property insurance information
- COA details
Ask your lender what specific documentation they need from your COA, such as financial statements and insurance policies. This can prevent delays later in the process.
4. Complete the appraisal and underwriting process
Your lender will order an appraisal to confirm your condo’s value and work on underwriting the loan.
The lender may need to reach out for additional information during this period or confirm details with your COA.
Aim to be as responsive as possible when any representative from the lender contacts you in order to keep the process moving.
5. Close on your loan
On closing day, you’ll review and sign all necessary documents and pay closing costs and fees.
When closing is complete, the new loan will replace your current mortgage, and you will begin making payments under the new terms and conditions.
Factors to consider before refinancing your condo
The most unique aspect of refinancing a condo is the role of the COA, but condo owners must also consider the financial impact of getting a new mortgage.
Let’s review the most important considerations for refinancing.
COA requirements
Before refinancing, familiarize yourself with your association’s requirements and any potential fees for requesting documentation.
Speak with a lender as soon as possible to determine your condo’s eligibility based on lender requirements.
Closing costs and fees
Closing costs and fees can range from 2% to 4% of the loan amount. Carefully consider whether the benefits of refinancing outweigh the initial costs.
Overall financial impact
Consider the short-term and long-term considerations of refinancing with your budget and goals.
If you’re getting a cash-out refinance, make sure you have a clear plan for using the funds.
Is refinancing a condo more challenging?
Refinancing a condo can involve additional steps, such as the lender’s review of the COA.
Still, with proper preparation and the right lender, refinancing can be a smooth process that leads to significant financial benefits.
Unlock your condo refinance options with Compass Mortgage
Compass Mortgage is committed to providing a better mortgage experience for our borrowers.
Our experienced loan officers are ready to support you as you navigate the condo refinance process.
Refinance with Compass Mortgage today, or call us at (877) 932-8221 to discuss your questions or concerns.