Take advantage of mortgage refinance to have affordable loan terms

Due to the recession of 2007 and inflation, price of daily commodities are still on the rise. If you’re facing financial hardship to make monthly payments towards your mortgage, you can opt to go for refinancing mortgage, so that you readjust the mode of repayment, by altering the loan conditions.

What mortgage refinances mean

Mortgage refinance is a process by which you can take the opportunity of getting a lower interest rate or converting your fixed-rate mortgage to an adjustable-rate mortgage, or vice versa. You can also renegotiate on the principal amount, shorten or extend the existing loan term.

Types of refinance

The 2 main types of refinances are:

• Cash-out: You can use this type of loan for debt consolidation, home improvement, and pay off your credit bills. You can refinance with a loan amount that is greater than your current mortgage, and can keep the cash difference, if you qualify with the current home equity.

• No-closing cost: With this type of refinance you can get a new mortgage loan by paying few upfront fees. If you find that market interest-rate is lower than your interest-rate on your current mortgage at least by 1.5% or more, then you can go for this type. However, not all lenders will be ready to give you this facility.

Eligibility criteria for refinance

In order to get approved for refinancing, you should have:

• A good credit score

• Your current loan- to-value ratio should be 80%

Documents needed for refinance

To refinance your current loan, you have to furnish the following documents:

• Your salary slips

• Credit score and credit report

• Proof of your total monthly debt amount

• Statements from your bank and brokerage

• Income tax returns, W-2 forms

When to opt for a refinance

You can opt to refinance your existing loan if you meet following reasons:

• You want to have lower monthly payment

• The interest rate in the market has become lower than your current loan rate

• You need some extra cash

• Your home equity has exceeded 20% of the loan amount and you want to stop paying towards PMI

Advantages of refinancing

The benefits of opting for a refinance are:

• You will be able to build equity faster on your property, if you can have lower loan term

• You can get cash out from your home equity

• You will be able to have lower interest rate on your mortgage

Prior to applying for refinancing mortgage, you should go through all the clauses in your existing loan. In some mortgages, you need to pay pre-payment penalty and some lenders also charge you extra for closing and refinancing. So, you should calculate all the overall costs and only opt for refinance if you find you can truly have a substantial cost saving.