How to Refinance the Principal of a Loan

The money you sink into high loan payments can really put a damper on your other financial goals. That's why you should always be on the lookout to refinance. Unfortunately, when you refinance, you often have to pay more than just principal. Your new loan will be a combination of interest, cancellation and administrative fees, not to mention closing costs. Find out exactly what costs you will incur and see if you are able to pay them upfront. If you have the cash, you can refinance just the principal without adding fees and interest to your new principal amount.

Request a payoff figure from your lender good through at least 30 days from the current date. Ask for a breakdown of principal, interest, administrative fees and a per diem. A per diem is the interest you pay on the principal balance each day.

Subtract the principal balance from the total payoff figure. This is the amount you'll have to pay out-of-pocket before closing costs.

Contact lenders and research rates and fees. Ask about application fees, rate lock fees and closing costs. Write down and compare the information to make your decision.

Complete an application at the lender you choose. Write only the principal balance of your loan in the "Amount Requested" section. Submit all supporting documentation requested and pay any applicable application fee.

Sign the disclosures you receive in the mail. The lender must send you a Truth-in-Lending Disclosure and Good Faith Estimate within three days of application. The Good Faith Estimate outlines the anticipated costs in closing the refinance.

Add the costs from the Good Faith Estimate your out-of-pocket number. You will now know approximately what you'll have to pay at closing.

Sign the commitment letter upon approval and schedule a closing date. Request an updated payoff figure if you've made a payment in the time since you started the refinance process.

Review the settlement statement prior to closing. Look for "Cash From Borrower." This is the amount you will pay out-of-pocket.

Attend closing and sign the refinance documents. Bring a certified check for the amount listed on the settlement statement.


About the Author

Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.