By Amber Kevin
As one of the common debts today, mortgage loans are the choice of many whose dream is to own a real estate property. It is a huge milestone. But this is a huge sum of money, and it may take ages to complete with repayments, especially with a smaller income. An online personal loan can help when you need funds quickly, but it is not the best option.
Ever heard of mortgage refinancing? You can think of refinancing if the home loan isn’t helping in your current financial situation. Luckily, mortgage refinancing shouldn’t be challenging. The process is quite simple as it is the same way of acquiring a mortgage. This approach can be your savior when finances are tight. It can help pay your bills. We have compiled tips to finance a mortgage in this guide.
Take a look.
The meaning of mortgage refinance
Mortgage refinance is obtaining a new loan to replace an existing one, either from the same lender or a different one. Loan refinancing helps to repay the old loan in full for account closure.
After availing of the new loan, you will be given new terms you will follow until you pay it back in full. Interestingly, you can also refinance this other new loan if you want. The refinancing process is like a cycle if you opt to refinance one loan after the loan and the steps are quite similar to that of securing a mortgage loan. However, many claim it is faster and uncomplicated.
The steps are basically the same. You need to verify credit history, income, current debt, etc. Once approved, a lender gives you specific terms of the loan and the repayment options you can choose from.
A refinance loan isn’t instantaneous as the case of instant personal loan. The process could take days, a month, or even more. The period depends on your property, your financial situation, and the loans involved. Therefore, planning your timeline properly is advised.
Before choosing a lender, shop around to see the kinds of rates and terms other lenders offer. The original lender might not always be the best option.
Tips to Refinance a Mortgage
If you are not using the same lender you used to get the old mortgage, the refinancing procedure may vary, though slightly. It’s basically the same steps with little differences if you are using different lenders. In general, these are the steps to start the mortgage refinancing process;
Understand the goal of refinancing
Know the main aim you decided to take the refinancing route. This is not an emergency loan to cater for unexpected costs. Think about what you want to achieve. Maybe you want to reduce the current high rate, change the terms of the loan, or just switch to a fixed-rate loan from the variable loan you were having earlier. Perhaps you are thinking of cashing out equity built up from the current property.
Understanding particularly what you will gain through refinancing will help you know the most suitable loan for your needs.
Assess your situation
You need to consider various qualifications required to avail the refinancing home loan. The lender will check your credit history & score. Moreover, the payment history and your income will also be considered.
Basically, the equity of that home and the current value is also assessed. This will help the lender know if they can give you a new loan or not. Therefore, before going any further to apply for the loan, remember to factor in these aspects. Review each factor to know where you are and determine if you will be eligible.
A good credit history, a higher income, and lots of equity in the home increased the new approval chances. Conversely, if the score is lower since you received the first home loan, you may not be easily approved for the loan.
Determine if the tenure will change
Refinancing can either increase or decrease the repayment period. Let’s say you’ve paid for 10 years the old mortgage loan which had a tenure of 20 years. Now, you want to refinance into another loan with the same tenure of 20 years. You’ll be paying the loan for a total of 30 years. Refinancing the loan into ten years cuts back the total payback period to 20 years.
Look for the best lender
Don’t just stick to your current lender. Cast your net wide to find other options. The mortgage interest rates are variable and you can easily get a good deal with lower rates. All you need to do is compare multiple lenders, about 3 offering loans at good terms, and apply through the personal loan app. You can also get a letter for your mortgage pre approval from many lenders and then compare what they offer. In fact, pre-qualifications will enable you to see the amount you may be allowed to borrow. Opt for a lender that suits you.
Know the time it’ll take to recover
Knowing the time, it’ll take you to recover that refinancing cost is also important. Otherwise termed as the breakeven point, understanding how fast you can recover is helpful. Normally, the closing costs are origination fees, which range between 2 to 6 percent of your new loan. These costs are usually paid upfront before getting the funds.
To know the time, it’ll take for one to recover the costs of refinancing, divide the total costs by the amount you will save every month. The number you get is the money it will take to recover the costs.
