Refinancing Your Mortgage Guide: Important Things to Remember

Refinancing is a major decision you take in order to reduce or increase your monthly loan payment. Whether refinancing is the right decision for you or not, it totally depends on you. Here are some important things you should keep in mind while refinancing your mortgage.
Your Refinancing Goals
The very first step in refinancing your mortgage process is determining your refinancing goals, things you want to achieve from refinancing. Refinancing your mortgage rebuilds your debt, it does not erase it. You are just flipping one mortgage term in another. If the aim of refinancing your mortgage is to reduce the interest loan amount or want to increase the length of the loan to decrease monthly payments, this is the right thing for you. Always remember your goals and then work on it.
Right Time for Refinancing
Next step is to look for the right timing and situations for refinancing your mortgage. You can refinance your mortgage if your credit has improved or your income level has increased, but in adverse situations, you can also refinance your mortgage if your credit score is not so good. Visit Crediful to know more about it.
Types of Refinancing
Cash-out refinancing and standard refinancing are two major types of financing. A mortgage is taken out for higher amounts than the previous mortgage’s amount in cash-out refinancing. The difference in amount is then taken in cash. In standard refinancing, your existing mortgage is replaced with a new, lower interest rate option. In this financing, no cash is taken out.
Cash-out refinancing results in little bit higher interest rate because lender’s amount of money is at risk. This is a good choice for you if you want to pay your other debts like personal loans or credit cards.
It is important to remember that refinancing involves cost. It includes your broker fee, application fee, mortgage points, appraisal fee, origination fee, title search fee, inspection fee and other additional costs. These fees should be paid in cash, check or they can be added to the principal balance of your mortgage.
Choose the Right Kind of New Mortgage
Refinancing also means getting a whole new mortgage. If you are trying to get a new mortgage, you may not get a good mortgage on your original loan. Look for all the alternatives available. Be sure that there is no penalty for prepayments on your new loan before finalizing or getting start to approve for a mortgage.
Check Your Required Refinancing Documentations
Generally, a refinance mortgage is available for those homeowners who have sufficient level of income, a good credit score and at least 20 percent equity in their houses. Borrowers must check all the required documents and criteria before moving for refinancing.
Understand Payoff Amounts and Penalties
The lender “pays off” your existing mortgage when you refinance it. The refinancing lender will ask for a payoff statement from your current home loan holder. This statement typically includes the following things:

  • The principal balance of an existing mortgage loan
  • Interest amount to be paid
  • Daily interest charges
  • Payoff statement fee

The payoff amount is usually higher than the amount owed because of the additional charges and fees. To determine your payoff amount, you can add your mortgage payment to your current balance.
Debt-to-Income Ratio
You will assume to get a new mortgage loan easily if you already have one, but lenders have raised the credit score criteria and have become strict on debt-to-income ratios. You can get a mortgage loan if you have a stable income and savings. Your debt-to-income ratio should be 36 percent or less. If you have some additional positive factors, then the lender will go up to 43 percent. To qualify for mortgage refinancing, you will need to pay off some debt.
Mortgage refinancing is a complex process like any other financial transactions. It requires certain diligence from homeowners who want to refinance their mortgage.
Before refinancing, consult a reputable and trusted lender for any additional advice and for all your questions regarding refinancing. Research and do your homework regarding refinancing and remember the above points.

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