Refinancing your home allows you to apply for a loan to pay your other loans against the same property. A second loan gives you the benefit of a declining mortgage interest on your original loan.
Let's assume, for instance, that you are already paying mortgage on your current property. If interest rates plummet, you could decide to take a second loan to pay off the first mortgage loan.
However, when you go with the option of home refinancing, you should carefully consider the fact whether the amount you save in interest is equal to the amount you pay at the time of refinancing.
Advantages of mortgage refinancing
The major advantage of mortgage refinancing is that the process is very lucrative and can potentially save you lots of money, sometimes in the region of thousands of dollars annually.
At the same time, your monthly mortgage budget will significantly reduce thereby allowing you to have some extra money to cater to other expenses.
When you buy your dream house, certain factors will go a long way in determining your rate of interest. Such factors include your credit score, amount of down payment and most importantly, the prevailing market rate.
However, the interest rate tends to fluctuate and therefore, the interest rate may reduce significantly thus presenting you the opportunity to seek a second loan. Therefore, you can exchange, so to speak, a higher interest rate for a lower one, thus allowing you to lower your monthly mortgage payment.
Another important benefit of refinance mortgage is that it gives you the ability to reduce the tenure of your mortgage loan. If the initial mortgage period was for, say, 40 years, then mortgage refinancing will help shorten the period of 15 or 25 years.
Also, it can help you increase your disposable income considering the fact that you have more money in your pocket. You will make significant savings from your lower monthly mortgage bill which you can deploy towards remodelling your home or other miscellaneous expenses.
Refinancing your home is tax-deductible. In other words, even if you ever go bankrupt, you have a tax advantage for the closing costs associated with refinancing your home mortgage.
Important Procedures in Refinancing
First, you have to understand why you want to refinance your home loan. There may be many reasons why you wish to refinance your home, ranging from loan modification, the need for home improvement, or maybe you just want to shorten the term of your loan.
Whatever your reason is, you need to make sure that your reasons for refinancing are clearly defined. Then, decide what type of loan you want, either arm (adjustable rate mortgages) or a fixed rate and the most favourable term of the loan.
When you are contemplating on a mortgage refinance, it is important to have your home valued. As part of the refinancing process, you need to evaluate your home, as this will let you know the market value of your property which you can then relate to the lender.
However, before you borrow, you need to fill out a form that will decide whether or not you qualify to get the loan. Once you have established your eligibility, you will need to submit all the necessary documentation to the lending company.
As part of the process, you have to submit your documents for notarisation by a notary public. This part of the procedure ensures that a government-recognized official attests to the transaction.
Upon completion of documents and notarisation process, the lender may then release the loan.
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