Are you considering home loan refinancing? Do you think it is a good time to apply and have enough confidence you will be approved? Do you think it will save you money in the long run and thus do your finances good? Have you assessed your goals and reasons for planning and deciding on applying for a mortgage refinance?
Before you dive into a mortgage finance application, take time to consider the circumstances and factors involved in home loan refinancing.
This article can contribute to your making a more practical and informed decision regarding mortgage refinance. So read on and learn more about mortgage refinance. Solid knowledge about this crucial financial action can help you determine if home loan refinancing will indeed be a good move for you at this particular point in the lifespan of your original loan.
The definition of mortgage refinance or home loan refinancing is getting a new mortgage to replace your original loan. The new mortgage will not necessarily have to come from the same lenders.
The most common advantages. The process involves paying off the first loan and allowing for the second loan to be created in an effort to get better interest rates and terms, to reduce the amount of the monthly amortization, to switch from fixed rate mortgage to adjustable rate mortgage (ARM) or the other way around, to make use of the home’s equity for an important purchase, or to consolidate debt.
The good credit score advantage. Getting lenders to approve an application for mortgage refinance for the most part will be much easier if you have excellent, or at least satisfactory, credit scores and credit ratings. You will most likely achieve the desired results for refinancing in the first place, such as obtaining lower interest rates and terms, among other benefits.
Are you ready to take on the mortgage refinance process? Let us proceed with these detailed procedures.
As set forth in one of the previous sections, there are a number of good reasons for you to refinance your home loan. You must be aware of the potential pitfalls which may come with refinancing.
Be sure you have looked at all possible angles and looked through all available perspectives in identifying your personal reasons. Is it because you have examined the benefits which mortgage refinance can give you, or is your decision based on the current real estate trends which you are noticing?
Whatever your reasons may be, make sure you will be resolute about them.
To secure better interest terms and rates. Perhaps the best reason to refinance is to get lower interest terms and rates relative to those of your current loan. Lowering your interest terms and rates will not only save you more money but it can also contribute to building equity in your home more quickly, as well as lower your monthly amortization. This then brings us to the next section.
To trim down on your monthly amortization. While some may argue that a significant reduction in your monthly amortization can mean increase in the number of years until completion of the mortgage, it can also prove to be advantageous in that a decrease in monthly payment can mean less worrying over expending high on your home loan every month.
This may be applicable if you have other financial obligations, and your capacities to maintain your home loan seems to have become less assured than when you started your first loan.
If you take into account the amount which you can put away at present, a lengthier lifespan of mortgage may be dismissed as irrelevant. The savings which you can gain today from the decrease in monthly amortization can be helpful to you, and is a practical enough reason to refinance.
To switch from fixed rate mortgage to ARM or vice-versa. Either way can be a practical and reasonable financial strategy depending on your individual circumstances and situation.
At the onset, ARMs usually offer lower rates than fixed rate mortgages often do. However, adjustments along the way often lead to rate hikes which you would not want to concern yourself about. In that case, a switch to fixed rate mortgage can be the right financial move for you.
On the other hand, a switch to ARM can be applicable if you do not plan to stay in your house on loan for good. In this situation, you would not have to concern yourself about ARM rate hikes in the coming years.
Once you are definitive about what it is you are aiming for with a mortgage refinance, you can proceed and apply for a refinance.
Bear in mind the better your credit rating is, the greater your chances are of getting refinancing approval from lenders. Plus, they can offer you favorable refinance interest terms and rates.
If your credit report displays stellar credit history, then you are in good position to negotiate for a refinance.
However, in the event you find your credit rating is less than satisfactory, you may need to take action to repair your credit score. There is still something you can do in this instant. You can meticulously check your credit report. Make sure everything on the report is accurate, because there is a chance it may have glitches and errors.
For instance, check if there are payments which you already made and settled but are not listed on the report. Immediately dispute these mistakes with the credit reporting bureau.
Inaccuracies can hurt your credit score and always be mindful of what your credit history states.
Another part of your homework should be to find lenders and compare mortgage rates. In this way, you will educate yourself about the options you have and you will be able to arrive at a more informed decision on which lenders you will apply with for a refinance.
While new lenders will always be an option, especially if they can offer a favorable deal to you, do not discount staying with your original lenders.
Collect all the financial documents your lenders will most likely require for you to hand over.
Prepare your credit report, bank statements, proof of savings, statement of assets, certificate of employment and proof of income, and payment stubs, among several other necessary documents which you will need during the refinance process.
Let us not forget the costs related to the process of home loan refinancing.
Fees imposed by your lenders. You will be charged for the costs of a credit check and the costs of initial processing of the mortgage refinance request and application.
Fees paid for legal services of the lender’s attorney. Your lenders will charge you with the legal fees for the lawyer who conducted the closing.
Fees for title insurance and title search. These will cover the insurance policy issued by the insurance company. Also, these will cover any potential losses due to inconsistencies on the property title. These fees will also be allocated for review, validation and verification of property ownership.
Creditors are not created equal. However, while each of them may have varying terms, most lenders will require you to have maintained your first loan for at least 12 months before they can accept request for refinancing.
Note the aforementioned fees and charges, among the other overhead costs, to be imposed by your new lenders. If you decide to stay with your original lenders, the chances are you may not have to pay for these because your original lender will most likely no longer require another appraisal of property or title search, among other administrative and legal procedures. Moreover, while new lenders can offer you good deals, so can your first creditors.
You can never be certain what home loan financing will lead to later on. It may be helpful to you and your savings at the moment, but it might also hurt your finances in the future, for reasons relevant to the fluctuating economy and ever-changing real estate market trends.
If you are unsure of your choices, seek help. There are professional financial advisers to turn to. Speak with trusted contacts and associates who have had personal experience with refinancing and ask how it worked for them. Lastly, you can also resort to using online mortgage refinance calculators.
These refinance computation tools and applications available on the internet, may not provide you with facts, but they can provide you with realistic projections which can serve as a fair guide to you.