Complete information on mortgage refinancing
After the recent colossal economic crisis, when people are not being able to make mortgage payments on time after meeting the household expenses, it is recommended to refinance the mortgage. But before you consider the option of mortgage refinancing, gather the complete information.
Refinancing – changing terms of a mortgage:
Mortgage refinance refers to the replacement of the existing debt with a new one under different terms and conditions. In other words, borrowers will just allow someone to renegotiate the debt at more favorable terms. When you refinance your debt, you simply offer your debt to another lender to buy out who in turn will offer you more favorable terms than your existing ones. Since your current lenders will not want you to use another lender, they will give you the best deal on refinancing to retain your business.
When to consider mortgage refinance?
Refinancing is essentially a tool that can be used to lower the monthly payments and guard against the risk. There are many circumstances when you must consider the option of refinancing your mortgage. For instance, if interest rates have fallen since the time you obtained your mortgage, chances are more to refinance the mortgage at a lower interest rate. If you feel that the interest rates are rising high and becoming difficult to manage, consider refinancing the duration of the mortgage. This means, add years to your mortgage so that your mortgage payments are lower. Another good reason to refinance mortgage is to switch from adjustable-rate mortgage to a fixed-rate mortgage. With adjustable rate mortgage, chances are more that your interest rates will increase in near future. On the other hand, with fixed rate mortgage, interest rate will remain same throughout the loan term. Thus, refinancing to a fixed-rate mortgage will allow you to lock in at lower interest rates, even if interest rates rise.
How to refinance mortgage?
- First and foremost, gather all your financial information, including bank statements, W2s, investment account statements and two months of pay stubs. Also include a copy of your most recent mortgage statement.
- Then take a close view at your current credit score to determine the type of mortgage you can qualify for. Credit scores can be obtained from three major credit bureaus, TransUnion, Equifax and Experian.
- Look for prospective lenders to refinance your mortgage. Choose the one whom you feel comfortable working with. Once your have chosen a lender, he will review your credit report and will verify the financial and employment information.
- Once the lender is done doing the verification, go through the closing process. The closing process will pay off your existing mortgage and generate a new one through refinancing.
A few important things to consider before refinancing:
Before refinancing the mortgage, you must consider the costs associated with it. Take every drop in interest rates into account before going for the option. Some mortgages charge penalties for early repayment and some charge fees while refinancing. This can counter your savings that you have gained so far. So to avoid these unwanted costs, be careful while considering the refinance option. For people with very large mortgages, it is sometimes worth refinancing more often because the amount saved in interest is larger than transaction fees involved.
In conclusion, before refinancing your mortgage, educate yourself by going through the information mentioned above.