If you are facing difficulty to make payments towards your mortgage, you can opt to refinance your loan terms and conditions, so that you will have a lower repayment amount, according to your affordability and thus save your home from being foreclosed.
What does refinance mean?
If you are facing hardship in repaying your mortgage loan, you can take advantage of refinancing. It is a process by which you can readjust the mode of repayment of the loan by changing the existing terms and conditions of the loan. You can convert your fixed rate mortgage to an adjustable-rate mortgage, or vice versa, or you can have some changes in your loan term.
Why should you go for refinancing?
You can go to refinance your existing loan for the reasons mentioned below:
* You want to have lower monthly payment: If you find that the current interest rate in the market is lower than the interest rate you have on your mortgage, you can opt to refinance your mortgage, so that your monthly payment become lower.
* If you need extra money: If you need extra money for the tuition fees for your children or to remodel your home or to pay off credit bills, with high interest rates, you can go for refinancing.
* Your home equity has become more than 20%: At the time of taking the loan, if you were unable to make a down payment of 20%, you were required to purchase PMI (Private Mortgage Insurance). After that, if you have steadily paid your mortgage bills till now, your equity have exceeded 20%. Now, if you apply for refinancing, you do not need to buy PMI and thus can save money.
How will you refinance?
You need to follow the steps mentioned below, if you want to refinance your loan:
1. Know your purpose: You should know the exact reason why you want to go for refinancing. You can opt for refinancing, if:
+ You want to make early repayment of the loan
+ You want to lower your monthly mortgage payment
+ You want to decrease the amount of interest over a loan term
+ You want to get a lump sum of equity as cash
2. Find out if you’re eligible: To get approved for a refinance, you should have a good credit score and need to get your home appraised. To get qualified, the current loan-to-value ratio (The ratio of your current mortgage amount to the appraised value of your property) should be 80%.
3. Get your documents ready: To refinance your current loan, you need to submit the following documents:
+ Credit score and credit report
+ Your salary stubs
+ Statements from your bank and brokerage
+ Income tax returns, W-2 forms
+ Proof of your monthly debt amount (current mortgage, auto loan, credit card, home equity loan etc.)
4. Be ready with closing costs: You should keep in mind that, with a refinance, you are taking a new loan, with new terms and conditions. So, you need to pay for the closing costs. You should keep the money towards closing costs ready with you.
5. Choose the type of loan: You should have detailed information on the types of loans and choose the one that best suits your affordability.
You should know the details of each type of loan and its terms and conditions, before you opt for a refinance, so that, you can have the maximum value of your money and get the best deal.
Tenancy Agreement: Assured Shorthold Tenancy Agreement was written for us by Rothera Dowson Solicitors, with over 25 years specialising in Residential Landlord and Tenant Law.