What is refinancing?
When you refinance your mortgage, then it means you are applying for a new loan. By refinancing, you are paying off the old loan by getting a new one. Since you will be getting a new loan with other terms, a lender will need to get important information and documentation so as to verify whether you are qualified for a refinance. People choose to refinance so as to decrease monthly payments, take cash out of your home for bigger purchase, reduce your interest rates or switch the bank you are holding your mortgage with.
In most cases, the following information will be checked:
• employment history and income
• appraisal to establish the current value of your home
• assets such as savings accounts, stock and retirements
• Credit score and payment history
Rate and term refinancing so as to save money.
Generally, you refinance the remaining balance for a reduced interest rate and terms you are able to afford. (The term is the number of years it will take you to repay your loan).
Cash out refinancing.
Here you take a new mortgage for more than you owed. You can take the difference in cash or use it to pay off an existing debt.
Is it okay to refinance your home loan?
If you have held your current home loan for several years, chances are that your needs are likely to change. You may be in a different financial situation and your existing home loan may lack a wide range of flexible features and extras that are currently in the market.
It’s a good idea to review your home loan from time to time, to make sure it is still helping you achieve your financial goals and has all the features you need.
Refinancing involves repaying your existing loan with a newer loan. This may make your loan term shorter and decrease payments on your loan. This way, you can afford to make more mortgage repayments and acquire a home faster.
Why do people refinance?
You could be looking for good interest rates, new features and add-ons such as redraw facilities and account splitting.
You could be looking to make use of the equity of your home to make renovations.
If you are getting near the end of the fixed rate term, its best to check whether you can get great interest rates or a more flexible home loan.
You could be looking to consolidate debts like a personal loan, car loan or credit card on your mortgage so that it’s easier to keep track of your finances.
Refinancing your home loan may provide tax benefits. For example, if you refinance to get equity in your home and use the funds to make invests in real estate, shares or any other wealth accumulation opportunities.
Refinancing will assist most homeowners stay in their homes for the least money. However, it’s important for you to carry out enough research and try to understand how the new loan will have an impact on you.