Everything you've ever wanted to know about refinancing your home loan is right here. This bird's-eye view, broken down into seven easy points, will be very useful.
People say that only death and taxes are certain. And if you own a home or plan to buy one, you can probably add "mortgage" to that list. Most homes are bought with a mortgage today all over the world. More now than at any other time. Not only that, but the process of refinancing a home mortgage is just as common.
Mortgage explained
A mortgage is a loan given by a bank to someone who is buying a home. The property itself is still the collateral. In this case, the "principal sum" is the amount of the loan that was given out in the first place. An annual interest rate is added to this amount. Most of the time, the mortgage is paid every month. Mortgages have made it possible for people to own their own homes, but if they can't pay off the loan, the lender often takes the home back. When the lender takes back the property in this way, it is called foreclosure or repossession, and the lender can sell the property to someone else.
How to refinance a home mortgage
When someone "refinances" their mortgage, it means that they have gotten a second secured loan on the asset, which in this case is the house, even though the house was already collateral for the first loan (the original mortgage). When you plan to refinance your mortgage, there are a few things you need to keep in mind. Now, let's look at a few of them.
A home mortgage refinance is similar to debt consolidation in that it lets you get a secured loan that you might be able to use to pay off other smaller loans you already have.
It's easy to see the benefits of a home mortgage refinance when you compare it to other loans. For instance, even though this is a new loan, it could have a lower interest rate and help you pay off smaller loans with higher rates. It could also be paid off over a longer period of time than the other loans you already have.
Refinancing a home mortgage helps the borrower lower the risk factor when it comes to interest rates. Most debts will probably have a variable interest rate, but when you refinance your home mortgage, you can often choose a fixed rate.
When a lender offers to refinance a home mortgage, the borrower usually has to pay a certain percentage of the total loan amount up front. Each point is one percent of the total loan amount, and if you pay more points in the beginning, the interest you have to pay will probably be less.
Keep in mind that the lender with the lowest interest rate might not be your best option for refinancing your mortgage. You also need to make sure you don't pay too much for the loan fees or closing costs.
Another thing about interest rates is that when you pay a fixed rate, you know exactly how much you will have to pay each month, so you can plan for it better. With an adjustable rate, on the other hand, you don't know how much you'll have to pay each month, but the rate is usually lower than a fixed one.
Have your documents for your home mortgage refinance ready and keep your credit score high. Your credit history is a big part of whether or not you can get a loan.