Thinking of Refinancing Your Mortgage? Top Tips to Keep In Mind
No one likes to be riddled with debt their entire lives. It is a tough pill to cope with. However, if you need a large sum of money, the only way it can be done is by getting a loan from a bank, or other lending agencies out there. Most times the interest rates are high, and it makes it an impossible task for a few to pay back the loan. This is where one should consider mortgage refinancing. If you own a home, you can use the built-up equity in your house to take out a mortgage to take care of your financial situation or buy a new home or pay for your children’s post-secondary education. Refinancing your mortgage is a financially logical step. Below-mentioned is some tips if you are considering refinancing your mortgage:
Ensure you set a financial goal
Before you consider refinancing your mortgage, you must take into consideration your finances and budget. There are primarily four reasons why people refinance:
- To lower the interest rate on their mortgage and increase their monthly cash flow.
- To reduce their loan term, helping them save on interest in the long term.
- To use the built-up equity in their property to consolidate debt, pay for their education, or even home improvement projects.
- To change their loan type from an adjustable-rate mortgage to a fixed-rate mortgage.
When you consult us, you must share the above-mentioned information, so that they can better understand what type of refinancing option makes the most sense for you.
Identify how much built-up equity you have in your house
When it comes to refinancing your home, an important piece of the puzzle is the equity present in your house. The amount of equity is calculated based on the current market value of your house and the remaining available balance on your mortgage. For instance, if your home is worth $300,000 and the owner of the house has paid $200,000, that leaves them with a remaining mortgage of $100,000. In this scenario, the homeowner can choose to refinance and take out a new mortgage for the $100,000, thus possibly qualifying for a lower interest rate and monthly payment.
Obtain all the necessary documentation
When you choose to refinance your mortgage, you should ensure that you are prepared with all the necessary financial documents and have them ready for the lender. The documents required to refinance a mortgage are:
- Proof of employment income
- Bank statements
- Tax documents
- Documentation of any assets such as stocks, bonds etc.
- Statement of debt like a car loan, education loan, existing mortgage, or any other line of credit
Additionally, you should also check your credit score and look at your credit history to get an idea of where you stand financially. Most lenders will look at an individual’s credit score before they approve the mortgage request.
Do your research and shop around to compare rates
As a borrower, you must do your due diligence and shop around and compare several refinance rates online, or contact local lenders. Whether you are choosing to use a new mortgage lender or a mortgage agent you’ve worked with previously, choose a lender or agent that you can trust. Comparing offers from different lenders will ensure you get the best deal. However, one should be wary of low advertised interest rates. As mentioned above, an individual’s credit history is a significant determining factor as to whether they get approved for refinancing or not. At Matrix Mortgage, our experienced mortgage agents will shop around for the best rates on your behalf.
Apply for refinancing with multiple mortgage lenders
Avoid limiting yourself to applying with one mortgage lender. Talk to several lenders and get loan estimates from them to make a more well-informed decision. This advice is crucial for those people whose credit history is not the best. Every lender has its own criteria on who they choose to lend money. If one lender rejects your loan request because of your credit score or debt-to-income ratio, the other lender may not. You will also come across interest rates offered by one lender that may be better than the other lender. The only way you want to know which is the right lender is to identify the loan that best fits your specific financial requirements.
Get an appraisal on your house
Many refinancing mortgage lenders will require the borrower to get an appraisal on their property when it comes to considering the mortgage application. This is not something one should worry about. Also, in this process, you might be surprised and find out that your house may be worth more than you initially realized. On the flip side, you may also find out that your property is valued less than you estimated it to be. As long as the appraiser does not find your home is worth less than the mortgage you want to refinance, it will not be of any impact. In certain cases, the borrower will be eligible to get a no-appraisal refinance if they meet certain conditions.
Choose the right lender and lock in your interest rate
Once you get back from the lender you have applied to, you will be able to make a more well-informed decision. If your mortgage application is approved by the lender, you should receive a loan estimate detailing the loan amount, closing costs, interest rate, and other related information. Most times, a borrower’s decision is usually influenced by a lender that offers a low-interest rate. Before you choose a lender, you must think about what is important for your financial situation. Finally, once you have chosen the lender, you close on the refinance loan and pay the closing costs. The closing costs usually add up to somewhere between 2% – 5% based on the value of the loan. The borrower can also get a no-closing cost to refinance option. This is an option where closing costs are bundled into your loan balance.
Refinancing your mortgage is a smart way to save money on interest rates in the long run. Do not forget to negotiate with the lender, including shopping around to get the best deal possible. The team at Matrix Mortgage can help with this. Contact our team today to schedule an initial consultation or to find out more information.