Posted onMay 02/2014
Mortgages should be re-examined every year. There are options which could save you thousands of dollars, especially if your current mortgage has a high interest rate. Refinancing your mortgage is an option which could improve your financial situation.
What is refinancing?
Refinancing is setting up a new mortgage: transferring your current loan balance to another one with a lower rate. If you refinance, you will pay the existing mortgage and any legal claims against the property.
You should do plenty of research and consult a mortgage specialist to ensure refinancing is the right step for you. Refinancing means you will cut down on interest charges. It is a good option if your new interest rate is at least 1 per cent lower than your current interest rate. Over the life of your mortgage, this will save you thousands of dollars.
Are you ready to refinance?
You must analyze your financial situation before applying for refinancing. If your lender does not think you are eligible, you will be refused. Refinancing depends on the value of your home, your credit score, and the lender’s assessment of you as a risk.
Do you owe more than your home was appraised? Owing more than you had thought could lead to lenders turning you down. One solution entails organizing another appraisal, if you think your home should be valued differently.
Your financial situation is the most important factor the lenders will consider. A poor credit score will diminish your chances of refinancing, whereas a high credit score will give you the best option for refinancing with the lowest interest rates.
Your credit score reflects your history of repaying debts, and even if it is poor you can take steps to improve it. The best way of improving a credit score is paying off your debts. For example, if you currently just pay the minimum requirement on your credit cards, budget to pay a little more. Even paying an additional $10 per month will improve your credit score, and of course decrease your debt load.
You must also ensure that you pay all bills on time. Late payments will contribute to a bad credit score.
In addition to your finances, your lifestyle will affect the lender’s decisions. if you have a history of frequent moves, or if you are in the military, you could be turned down. The lenders must be convinced you intend to stay in the home.
Sources used in researching this article include Jencor Mortgage Corporation: Steps to take before refinancing and Jencor Mortgage Corporation: Roadblocks to refinancing