Step 1 Decide If You Need to Apply for a Loan
Refinancing your mortgage is a long-term commitment, so before approaching a lender, you must decide whether you have a good reason to apply for a mortgage, the following are some reasons:
- You are planning to renovate your house.
- You are thinking about buying a new property.
- You need to put up enough money for your child’s education fund.
- You are thinking about entering into a new business venture, but do not have the capital to proceed.
- Refinancing your home is a strategy to consolidate all your debts.
- Interest rates have dropped to the point that refinancing your home can lower your borrowing costs.
Step 2 Evaluate if refinancing your mortgage is your best option
Refinancing your mortgage may be beneficial to you under certain conditions. This is where you will need to speak with a mortgage professional, they can give you an honest opinion of the market and whether mortgage refinancing is your best option.
Step 3: Can You Afford the Monthly Repayments of a Refinanced Mortgage?
Before applying for a loan, it is best to ask yourself these questions:
- “How much do I need to borrow?”
- “How much can I actually afford to borrow?”
- “Do I urgently need the money or is it possible to just save up for it?”
- “How much can I afford to spare for monthly loan payments?”
- “Can I still pay off the loan even if interest rates increase?”
If you are honest and realistic with your responses to these questions, then you have a better chance of getting a loan that’s favourable towards you.
Step 4 Understand Your Credit Score
Sometimes your credit score can make or break your loan application. Lenders need to know how well you are with handling your money. If your credit score is bad or bruised, the best option is to try and repair it first before applying for mortgage refinancing.
Step 5 Shop around
Various lenders offer different mortgage terms and interest rates. Make sure you are taking time to fully understand each one. There are three basic mortgage loan types.
- Fixed-rate mortgage: You will pay the same monthly payments and interest rate for the duration of mortgage term.
- Variable rate mortgage: Your monthly payments and the interest rate of your mortgage will fluctuate depending on market conditions.
- Hybrid or combined rate mortgage: Terms may include both fixed and adjustable rates.
Feel free to talk to a mortgage professional or your current lender to see which options are available to you.
Step 6 Calculate the total cost of Refinancing
When you refinance the mortgage of your property, you’re not just going to pay back the amount you borrowed. You must consider other expenses such as:
- Home appraisal costs
- Title search fees
- Title insurance fees
- Legal costs
Once you have calculated the total costs that come with refinancing your home, you’ll get a clearer picture if the loan options available to you are favorable or not.
Step 7 Submit your loan application
It is now time to begin applying for a mortgage refinance on your home. If you plan on doing this on your own, you will need approach the lenders and ask them for a full list of documents that must be submitted with your application.
Step 8 Read and Review the proposed Mortgage Agreement
At this point the lender has reviewed and approved your application, as they have found you are a qualified to secure a refinancing mortgage loan. You must make sure you read the conditions of the loan thoroughly. You can ask the lender about clarifying any thing on the contract you don’t fully understand. Perhaps a mortgage expert could help guide you and negotiate a lower interest rate, as well as better terms.