When Should You Refinance Your Mortgage?

In simple terms, refinancing your mortgage allows you to replace your existing mortgage with a new one. There are quite a few benefits to doing so. However, you must remember that refinancing can cost up to 6% of the principal of the loan. Moreover, you need to perform the lengthy process of appraisal, search and paying of the fees. As a result, you must make sure that you are refinancing for the right reasons. In other words, you need to refinance the mortgage at the right time. Here are some situations in which it can be beneficial.

To Get a Lower Interest Rate

The most popular reason for choosing a refinance mortgage Brisbane is to decrease the interest rate that is currently applicable on your existing loan. Even 1% savings in the interest rate is a good enough incentive. By reducing your interest rate, you can certainly save money. Additionally, you will also end up increasing the rate of the equity buildup of your home. Moreover, it can reduce the amount you need to pay every month.

To Decrease the Term of the Loan

You can even refinance an existing loan to enjoy a shorter term. However, you should only do so when there is a fall in the interest rates. This will allow you to decrease the term without affecting your monthly payment too much.

To Transform Fixed Rate Mortgages To Adjustable Rates and Vice-Versa

Adjustable rate mortgages or ARMs generally offer lower rates at first compared to fixed rate mortgages or FRMs. However, periodic adjustments tend to bring about rate increases resulting in a higher rate than FRMs. On the other hand, if the financial environment is seeing a falling interest rate, ARMs become a better option than FRMs.

By a refinance mortgage Brisbane, you can easily switch between the two to suit your current circumstances. Of course, you need to check the market conditions before you do so.

To Consolidate Debt and Tap Home Equity

Many people choose refinancing in order to tap into the equity of their homes and consolidate their debts. However, that is not always a good idea. If you do not refinance the mortgage properly, you may end up increasing your debt to such a level that it becomes unrepayable. You need to remember this point when using a refinance for debt consolidation or accessing home equity.

How to Refinance Your Mortgage?

In order to get the refinance, you need to work with a good provider. Additionally, you need to take into account the financial aspects of the deal. Of course, the deal should enable you to fulfill the aim that you had in mind for the refinance. At the same time, you must make sure that the deal does not end up increasing your debt in the long run. As such, you need to calculate the actual financials of the deals being presented to you. Check whether you can afford the monthly payments along with the term mentioned.

Refinancing is always a major financial decision. As such, it needs to be undertaken with careful consideration and total earnestness.

Things to Know Before You Refinance Your Mortgage

Refinancing a mortgage can be a considerably long process and it depends on various different factors. Before you apply for refinance mortgage Brisbane, you should be aware of these certain facts.

Home Equity

The first thing that you will require for refinancing your mortgage is the equity of the home. Decreasing values of homes might make you owe more money to the mortgage lender than the current market value of your home. Refinancing with no or less equity can be possible with the conventional lenders. The best way by which you will be able to find out that you will qualify or not is to set up a meeting with the lender to discuss about the issues. If you have at least 10% equity, it will be convenient for you to qualify for a new loan.

Credit Score

Lenders, in recent times have made their loan approval standards a tad tight. So, it might come as a surprise that in spite of having a good credit, you might not be able to qualify for the lowest rate of interest. People who borrow with low scores might be able to get new loan, but the interest rate that they will be paying will be quite high.

Ratios of Debt-to-Income

When you already have a mortgage loan, you might enable you to assume that you will get a new one pretty easily. However, have already increased the bar of the credit scores and has also become much stricter with the debt-to-income ratio. Albeit, factors like high income, history of stable job, and substantial saving might allow you to qualify for a loan, lenders generally keep housing payments below 28% of the gross monthly income. Thus, the overall date-to-income should not be more than 35%, though with some other factors, certain lenders will go above 40%. You might pay off some debt prior to applying for refinance mortgage Brisbane to qualify.

Cost of Refinancing

The cost of refinancing a home will cost at least 3% of the loan amount. However, you can look for several ways to reduce the cost. If you have sufficient equity, you will be able to roll the cost in the new loan. There are some lenders who offer no-cost refinance. This means that you will have to pay tad high interest rate for covering the refinancing costs. You should shop around and negotiate because some of the refinancing fees might be reduced or be paid by the lender.

Term versus Rates

Most of the borrowers tend to focus on the interest rate, yet it is important to ratify the goals when you are applying for refinancing. This should be done to decide the mortgage product that will cater to your needs. If your focus is reducing the monthly payments as much as you can, you might want a loan with low interest rate. Borrowers paying off their loan as soon as they can should opt for a mortgage loan with shortest term of payment that they will be able to afford.