The Beginner’s Guide to Home Mortgage Refinancing

A home mortgage refinancing allows you to save money or tap equity you can use for your startup business. A mortgage refinance replaces your current home loan with a new one. Refinances enable you to reduce monthly payments, lower interest rates and take cash out of your home for large purchases. A home refinancing pays off your initial loan, allowing you to get a new one. Refinancing can be beneficial for people with good credit history. They can convert a variable loan rate to a fixed one and get a lower interest rate. However, it is a risky process for people with bad credit history. Here is a beginner’s guide to home mortgage refinancing.

1. How Does Refinancing Work?

You get a mortgage to pay the seller when buying a new home. When refinancing, you get a new mortgage. However, the new mortgage pays off the balance of the old home loan instead of going to the seller. You must qualify for a loan like other lenders to get a mortgage refinancing. Mortgage refinancing requires you to file an application and go through the underwriting and closing process.

2. Reasons to Refinance.

Refinancing can assist you in many ways, from getting better interest rates to buying an asset. However, you must consider whether refinancing makes financial sense to you. Ensure you compare the new and existing loan repayments based on your interest rate and monthly fees. A mortgage calculator will help you do this calculation. Also, consider any costs you will pay to create the new loan. The common charges you may pay include;

•         Early termination fees
•         Loan establishment fees
•         Valuation
•         Lenders mortgage insurance
•         Mortgage stamp duty

3. Know Your Equity.

Home equity is your home’s total value minus the amount you owe on your mortgage. Check your mortgage statement to see your current balance and calculate your home equity. You can check online to see the market value of your home or call a real estate agent to analyze and value your home. You can refinance your home mortgage with as little as 5% equity. However, you will get better rates and fewer fees if you have at least 20% equity. The more equity you have, the less risky the loan is to the lender.

4. Choosing the Right Mortgage.

You must be careful when comparing a new home loan with the existing one. If your current mortgage offers a redraw facility and the new one doesn’t, you may be worse off even with a lower interest rate. So, ensure that your new mortgage has all the features that work for you. If you are unsure which loan product is better for you, you can always find the best mortgage refinance companies at Sfgate.com.

5. Prepare Your Application.

Refinancing is similar to applying for a new loan. So, you will go through the same application process you did when you took the first mortgage. Your new mortgage lender will request evidence of your capacity to repay the loan. Ensure you have every information ready, including;

•         Income Details. Prepare your payslip, recent tax statements, and evidence of any payments entering your bank accounts.
•         Evidence of any assets you own outside your home, including shares, superannuation, and investment properties.
•         Details of your living expenses.
•         Your credit history.

6. Apply for Refinancing.

After preparing everything you need for the new mortgage, it is time to apply for the loan formally. If you are using a mortgage broker, they will apply on your behalf. Your new lender may want to know your property’s value. This will help them to calculate the loan-to-value ratio on your loan accurately. Your lender will do this by organizing a formal valuation of your home.

7. Inform Your Current Lender.

If you are applying for a mortgage refinance with a new lender, it is time to let your current lender know that you are living. Your current lender will forward all the information your new lender needs. This will facilitate the switching of loans and takeover of your mortgage on your property.  

8. Review and Sign the Loan Documents.

If a new lender approves your loan, they will tell you in writing along with the terms of the loan. You will then need to verify the terms of the loan sign the necessary documents to make it official. The application documents contain rules and regulations you must adhere to. Ensure you read and understand these rules. You can also have your lawyer examine the loan documents to know what you are signing. Remember to sign some discharge paperwork, so you are no longer bound to the terms of your existing loan.

Now you know how home refinancing works and what to look for. Refinancing is no longer a complicated process and can be a great way to fund your business needs. However, do not hesitate to get help if you feel stuck.