Most homeowners will be faced with refinancing their mortgage at some point or another. Refinancing a mortgage involves replacing your existing loan with a revised one, either with the same or a different lender. Homeowners often seek to refinance because they want to achieve a particular goal or benefit from more favorable financial terms. Whatever your reason for refinancing, it can come with many short-term and long-term advantages.
If mortgage refinancing is something you are currently considering, we’ve outlined a few things to consider before you begin the process of refinancing.
Tip #1: Consider the reason why you’d like to refinance
Depending on where you are in the refinancing process, it’s important to keep the reason why you are seeking a new loan and stay focused on the core objective. Some of the most popular reasons for mortgage refinancing include the following:
Lower Interest Rates – Refinancing in order to secure a lower interest rate is the most common reason people have as it can save you a lot of money in the long run. It can also offer an opportunity to re-invest and plan for the future with only a few minor changes to the term and monthly payments.
Access Home Equity – For longer-term homeowners, equity has been built up in the home value that can be used to re-invest in many projects. The following examples are valid reasons to use your home equity to apply for mortgage refinancing:
- Renovations – Wouldn’t it be nice to have access to funds to be able to renovate your house or tackle an urgent home repair? You wouldn’t have to worry about how to finance that emergency situation.
- Purchase Property – Have you always dreamt of buying a new property, vacation home, or rental property? Now you can make it a reality.
- Education – How great would it be to be able to fund either your own educational dreams or have enough funds for your children’s education? Your dreams could be realized quickly and easily.
- Consolidate Debt – Relieve the stress and worry that comes with being in debt with a Debt Consolidation Loan. It will allow you to combine outstanding funds into one single monthly payment.
Tip #2: Factor in how much you can borrow
Mortgage refinancing allows you to borrow up to 85% of your home’s value minus any outstanding mortgages. The more money you’ve paid into your home, the more cash you can access.
For an easy example, if your home is worth $600,000 and you only have $200,000 left on the mortgage, equals $400,000 in accessible home equity. To access 85% of that equity would mean you have approx. $340,000 available to borrow.
You don’t have to use all of the money, so think of what you need the funds for the most and decide how much you want to tap into.
Tip #3: Be prepared for the application process
The process of mortgage refinancing is fairly straightforward, in fact, it’s similar to obtaining a first mortgage so there shouldn’t be too many surprises. But it pays to be prepared, so here’s what you should have ready prior to applying: income pay stubs, tax returns, bank statements, and a list of any and all assets and liabilities. Be prepared to be available to answer any questions the lender might have as this will speed up the application process and help you get approved faster.
Tip #4: Be aware of your current credit score
Check your current credit score to make sure that you will qualify for a new loan. If your credit score is below 650, you might want to consider a subprime mortgage broker who is experienced at handling low credit score applications. Also, if you have little to no income or are self-employed, a subprime mortgage lender can help you especially when the bank says ‘no’. At any rate, it is important to know where you stand prior to applying.
Tip #5: Can you afford the new payments?
By doing some basic calculations based on the new rate and term, be sure that you can handle the new payment terms. It is important to crunch the numbers before you sign the paperwork to be certain that you can manage the payments if they will be increasing from what you were previously paying.
Tip #6: Shop around for the best mortgage lender
The beauty of refinancing is that you don’t have to stay with the same mortgage lender that you started with. In fact, shopping around for a loan is the best way to ensure that you get the best interest rate and terms. By choosing to deal with a mortgage broker you can save yourself the headache of comparison shopping because the mortgage broker will do that for you. They have access to multiple lenders and can negotiate on your behalf, saving you both time and money.
Overall, the best candidates for mortgage refinancing are homeowners who currently have a high-interest rate on their current loan. These individuals are also in a strong equity position and require the funds to fulfill either immediate or long-term goals.
If this is you, it is beneficial to begin the refinancing process as soon as possible. After all, your financial future remains at risk of stagnation without taking action. Taking the first step can feel overwhelming, but if you have a trusted and experienced mortgage broker on your side, it can make the entire process that much easier.
Owning a home is an investment that deserved detailed attention and care. When you are faced with unexpected expenses or you need to consolidate your debts, it’s essential to find the right mortgage broker to step in and offer a solution that is best for you and your financial needs.
At Burke Financial, we operate with a vast network of lenders, including subprime mortgage lenders and we work diligently to find the right match for our clients. Using our proven Customer Success Journey, we and are able to give you the best possible borrowing experience so you can get your life back on track and invest in your future. Contact us today to begin a DISCOVERY Session with one of our trusted team members.