Refinancing your mortgage means that you are trading your old loan for a new one with a new interest rate and term. Refinancing is a way to lower your mortgage rates and to pay off previous loan. Those who have the perfect credit history will have the opportunity to convert their variable loan rate to a fixed and lower interest rate. But for those who have less than stellar records, refinancing can get a bit risky.
What are the advantages of refinancing?
As mentioned, the major benefit of refinancing your mortgage is getting a lower interest rate. The second benefit is having the power to clear your mortgage debt in less time. Refinancing can reduce your former 30 year loan to 15 years. The only downside is that you have to add more to your monthly dues.
We all want a stable monthly payment – something that’s hard to get by on your first mortgage. Refinancing makes it possible to turn your variable loans to fixed loans. Refinancing also gives you the opportunity to get a cash-back refinance that you can use for buying a new property or improving your current home.
Are there any risks?
A risk that you may experience when refinancing is the possible penalties and fees that you have to pay. Beware of contracts that allows the mortgage company to charge you extra fees. Refinancing also means that you have to pay for attorney to make sure that the negotiations will be for the better.
Questions to ask before refinancing
Ask the questions below before refinancing.
1. Are there any penalties that I should be aware of?
Ask your lender if you have to pay for any “prepayment penalty” when you opt to refinance.
2. What will be the cost of the new mortgage?
Lenders almost always charge fees whenever they create a new loan. Charges include application fees, appraisal, insurance and so on. Negotiate the prices and ask your agent to find ways to lower the amount.
3. How much of my tax will be reduced?
Ask your tax adviser if your overall savings will increase when you refinance in the future.
4. What are the documents needed?
Here are the following documents that you have to compete when refinancing:
- Copy of your insurance – Lenders will have to know if you paid enough coverage for the property
- Proof of income – Show you pay slips and a notifying document from your employer to prove that you means to pay for the mortgage.
- Title and tax documents – Lenders will also have to verify the title that you’re holding. They’ll need to see your tax documents so that they will know if they have to increase.
Should you refinance? Consult experts and make sure that you are financially prepared for any added fees.
Image source: http://www.persquare.com.ph/for-rent/2-storey-ncr-metro-manila-muntinlupa/ayala-alabang-village-aav-house-for-rent_90745 – Adrian
