Business

Refinancing a Mortgage – What You Need to Know

A large number of people are now interested in refinancing a mortgage loan. So let’s see what this actually means. When you refinance your current mortgage, you trade it for a new one at a different interest rate. The service is similar to that of other types of loans. The lender uses the new mortgage loan to pay the old one and you take advantage of more favorable terms. This is a great way to lower your monthly installment, remove another person from your mortgage, take the difference as cash, etc. There are plenty of legitimate online lenders that will offer you advantageous refinancing and an easy application process. However, here are some key considerations:

Check the Equity of Your Home

One of the most important things you should figure out before refinancing a mortgage loan is your home’s equity. If it is worth less than it was when you took out the loan, it won’t be a good idea to refinance it. In case this occurs, offline and online lenders use the term negative equity. They take the market value and subtract the remaining amount of the mortgage to calculate it. During the last year, the number of homeowners in negative equity has decreased drastically due to the Covid-19 pandemic. It is essential to check this factor because, with at least 20% equity, you will have a better chance to qualify for a new mortgage loan.

Trust an Accredited Lender

There are lots of online lenders that will offer you a mortgage refinance. But it is mandatory to always check their legitimacy. You’d better trust only authoritative companies like CreditTrust which is registered by the Bulgarian National Bank. The company is part of a group of investment and financial companies operating in the Bulgarian market with a long history and many years of experience. You must check the terms carefully before signing anything to see if they are flexible enough and tailored to your needs. Most users are satisfied with CreditTrust as they have very competent lending experts and the main activity of the company is related to mortgage loans.

Consider Your Credit Score

If you plan to apply for a mortgage loan from a bank, you should keep in mind that they have tightened their approval standards recently. This is understandable in these uncertain times with the Covid-19 pandemic, the high inflation, and factors that have a negative impact on people’s financial situation. You should take into consideration your income and credit score before applying for a mortgage loan or refinance. Sometimes clients with a really good credit score are surprised when they don’t qualify for lower interest rates. Here is why you should compare the offers from banks and reliable online lenders and try to find the most inexpensive.

Pay Attention to Your Debt-to-Income Ratio

People who have a mortgage loan think that getting a new one is easy. But lenders have become stricter with the so-called debt-to-income ratio lately. Basically, this is the percentage of your monthly income which goes for paying debts. If you want to calculate it, you can use the convenient online calculators which are offered by many financial institutions. The debt-to-income ratio helps lenders determine your borrowing risk and they usually want to keep it under the maximum of 28%. Nonetheless, you can come across lending companies that will go with a debt-to-income ratio of up to 40%.

Costs of Refinancing

Usually, refinancing a mortgage loan costs around 3% to 6% of the total amount. The good news is lenders can find a way to reduce these costs and roll them into the new loan. Some companies might offer you a no-cost refinance, but this isn’t always a good idea. To compensate for the costs, they will make you pay a higher interest rate. If you are about to refinance a mortgage, don’t forget to read everything carefully and negotiate to get the best terms. You should also check for additional fees so that you are not unpleasantly surprised at the end.

James Morkel

Tech website author with a passion for all things technology. Expert in various tech domains, including software, gadgets, artificial intelligence, and emerging technologies. Dedicated to simplifying complex topics and providing informative and engaging content to readers. Stay updated with the latest tech trends and industry news through their insightful articles.

Related Articles

Back to top button