If you are finding it hard to make payments towards your current mortgage, you can opt for a mortgage refinancing. However, you should find out whether or not it is the right time for you to go for a refinance and whether you can truly benefit from it. You can take advantage of a refinance loan, if you find all terms and conditions are as per your repayment affordability.
What is mortgage refinancing?
If you have any difficulty in repaying your current mortgage, you can opt to take a refinance loan. Mortgage refinancing changes the repayment terms and conditions of your loan. You get a lower interest rate and can change your adjustable rate mortgage into a fixed rate one or vice versa.
What are the documents needed for refinancing?
To refinance your current loan, you need to furnish the documents mentioned below:
- Your current salary stubs
- Credit score and credit report
- Proof of your total monthly debt amount
- Income tax returns, W-2 forms
- Statements from your bank and brokerage
When is the right time to go for a refinance?
The right time or situations when you can go for a refinance are as follows:
- Rise in income: You can opt to take a refinance loan, if recently you have got a salary hike, and as a result your debt-to-income ratio has reached such a favorable number that you will be eligible to get a loan at lower interest rate.
- Improved credit score: Generally, the lender will consider your credit score as a very important factor in determining your loan terms and conditions. So, you can go for refinancing, if there is an improvement in your credit score, to get reduced interest rate for your new loan.
- Current rate is low: If you find that the interest rate in the market is currently less than that of your existing loan, you can take advantage of a refinance loan.
- Home equity has become 20%: If your home equity has exceeded 20%, you can opt for refinancing and stop making payments towards your private mortgage insurance.
- Have more than one mortgage: If you have taken some loans, other than your home loan and are having difficulty in repaying both the loans, you can opt for a refinance and merge both the loans into one.
You should keep in mind that when you are going for mortgage refinancing, you are taking a new loan. So, you should be ready with the money you need to pay towards loan origination costs, closing costs and other charges. You should also find out whether or not the new loan terms and conditions will really be beneficial to you.