What is a Mortgage Refinancing?
First off, refinancing involves paying off the debt of an old loan with a new loan. Ideally, the new loan should have better terms that improve your finances and makes the process achievable.
That said, mortgage refinancing means trading off your old mortgage loans for a new one. In this process, your lender or bank pays off your old mortgage with a new one.
Borrowers engage in mortgage refinancing to shorten their payment terms and lower their interests to be paid.
They also want to take advantage of turning some of the home equity they have earned into cash to consolidate debts or tackle emergency financial needs.
For borrowers with a perfect credit score, mortgage refinancing is a good way of obtaining a lower interest rate and converting a variable loan rate to a fixed one.
On the other side of the coin, the exact opposite applies to borrowers with less than perfect or even bad credit scores.
Having taken a home mortgage, the economic playout in any society can make repayments difficult. Should you see yourself in such a situation, refinancing may be the best option to consider.
Ignorance can be dangerous. To curb this, written below are some essentials to know before going for mortgage refinancing option.
- Know your Credit Score: In recent times, the standards for qualifying for a loan with even the lowest interest rates have become very stringent.
Lenders now rate a minimum credit score of 760 as the standard to qualify for loans. Notwithstanding, borrowers with lower scores can still be considered but with higher interest rates or fees.
- Know your Debt-to-Income Ratio: Lenders have also raised the standards for debt-to-income ratio. Even though factors such as high income and substantial savings can help to qualify for a loan, lenders consider ratios of 36% or less but can go up higher to 43% on the right conditions.
- Ensure an Adequate Home Equity: Seeking for refinancing with no home equity hardly goes through, though there are some programs to this effect that can help you scale through.
However, home equity of at least 20% will enable you to qualify for a loan easily.
- Know the terms, refinancing costs, and interest rates: These are very essential factors to know your strengths and weaknesses and not end up defaulting.
Besides, knowing these helps you determine the best mortgage plan that suits your needs.
It also helps you know the excesses with regards to the loans to take thereby helping you cut down on unnecessary occurrences.
The Bottom Line
To get the best out of mortgage refinancing, take your negotiations seriously, putting into consideration every information given to you and required of you.
Build a reputable credit score and debt-to-ratio income. Fully understand the terms and conditions and ask questions where required. Do not leave anything to doubt and ignorance.
Speak with a reputable lender and carry out your researches as required.
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Disclaimer: The views and opinions of Eric Lawrence Frazier are his own and do not necessarily represent First Bank or any organization affiliated with Eric Lawrence Frazier, or the Power Is Now Media Inc. First Bank is an Equal Credit Opportunity Lender. Eric Lawrence Frazier, M.B.A, is also a Vice President and Mortgage Advisor with First Bank. NMLS#461807 and a California Licensed Real Estate Broker DRE# 01143482. Email: Eric.frazier@fbol.com. Ph: 714- 475-8629.
Eric Lawrence Frazier M.B.A
President and C.E.O
The Power Is Now Media Inc
