If you’re ready to refinance your mortgage, there are some things you should know. Refinancing is when the owner of a home gets a new mortgage loan to replace their current loan. This is done to lower your interest rate, reducing the cost of your mortgage payments and interest charged over time. You can also change your loan type or loan term. Ultimately, there are a lot of smart reasons to refinance your mortgage.
When homeowners refinance, they’re in control of the new rate and loan terms on their new mortgage. Since they’re more experienced when it comes to home loans, they also have a better understanding of what they want. However, there are some things you should know about mortgage refinancing. In this guide, we share 5 tips for success when it comes to mortgage refinancing.
1. Check Your Credit Score
To begin, make sure you check your credit rating. If you don’t know what your credit score is, now is the time to take a look. You can check your credit rating for free at all the major bureaus, and there are free online tools as well. Because your credit score plays an important role in the types of loans you qualify for, make sure yours is accurate and in good standing.
It’s a good idea to keep an eye on your credit score regularly to make sure there are no mistakes. Unfortunately, these mistakes do happen, and they can lower your score. If you do notice a mistake, make sure you report this immediately.
2. Understand Home Equity
Another important step when considering mortgage refinancing is to understand home equity. This is especially true if you want to take out what’s known as a cash-out refinance. This is when you borrow against your home’s equity, typically for remodeling or other home repairs. In simple terms, equity is the percentage of your home that you’ve paid off and own.
While most mortgage lenders won’t loan you 100% of your home equity if you refinance, you can borrow upwards of 80% of your home’s equity. Before you apply for a cash-out refinance, take a look at your current equity and how much you need.
3. Consider Closing Costs
Like with a normal home mortgage, add in any closing costs in the overall price. These closing costs depend on where you live, but they can really add up. Even though you’re covering the cost of your existing mortgage, you should still expect to see the following fees:
- Lender fees: Lender fees include bank transfer fees, admin costs, and so on from your lender.
- Appraisal: You’ll also need to get your home appraised to make sure the sale price is up-to-date.
- Title fees: Also known as attorney fees, you need to cover any expenses for government costs, notaries, etc.
- Interest: Lastly, you have to pay the interest prorated from the date of closing to the first of the following month.
4. Be Present for the Appraisal
Your new lender will do an appraisal of your home to make sure the value matches your new loan. While you don’t technically have to be present, it’s in your best interest to be there yourself. If you’ve added anything to your home since you’ve bought it, this can impact the value of your property. Not all upgrades are easy to spot.
If you can, keep a list of all permanent upgrades. If you have an estimate or receipts from contractors, bring these. It’s perfectly normal to walk through your home with the appraiser to point out any relevant changes and revisions to your home. Subtle changes might not be obvious, and you want to highlight anything impacting the overall value.
5. Respond to Your Lender Quickly
One of the biggest hassles of refinancing is how lengthy the process can sometimes be. While refinancing can take upwards of 45 days, you can keep things running smoothly by responding to inquiries as soon as possible. Your lender might ask for additional documentation, work history, and so on during the process. This is completely normal, and it’s nothing to worry about.
The sooner you can send these things, the faster your mortgage will be processed. If possible, include your contact information so they can get a hold of you quickly. If you’re working with a real estate solicitor, this can also speed things up since they’ll work with you each step of the way.
Successfully Refinance Your Mortgage
With these tips in mind, you’re ready to start your own mortgage refinancing process. With interest rates low, it’s a great time to refinance your home to secure a better rate long-term. It’s always important to look at the big-picture when it comes to your home loan.
Are you considering a mortgage refinance? If so, you don’t have to navigate these next steps alone. Contact a professional at Debt Busters today on 1300 368 322 for guidance through this process.