Financial crises can hit you anytime in life, even if you are having a consistent cash flow. Above that, if you are liable to pay the EMIs of the loan amount you took a few years ago, your expenses can start feeling a burden. In these cases, individuals are advised to go for mortgage refinancing. If you are wondering is it, keep reading through to understand:
What is mortgage refinancing?
Mortgage refinancing is a process through which individuals replace their current mortgage with a new one. Similar to how you apply for any other loan, mortgage refinancing also works in a similar way. Thus when you apply for refinancing your mortgage, the lender goes through the same loan process of validating your credit, income, and employment history. This is done to ensure that you are a responsible borrower and will be able to repay the loan amount on time.
While choosing the refinancing options or opting for a new mortgage, you can use the online home mortgage affordability calculator to have an estimate of EMIs for the new mortgage.
When you opt for mortgage refinancing, the existing loan is paid using the loan amount from the new mortgage. Refinancing is usually beneficial for individuals if they wish to get lower interest rates on the new loan, lower their monthly payments, or decrease the term of the loan.
How much do you have to pay for mortgage refinancing?
Individuals are usually advised to opt for mortgage refinancing in order to save money in the long run. However, there is some upfront cost involved with refinancing, which includes:
- The mortgage application fees, loan origination charges, etc., are all clubbed together and paid as a lender fee.
- The home appraisal fees, documentation fees, and credit checks are all termed as third-party fees included in the upfront cost.
- Homeowners insurance
- Insurance fees or title search
The new loan amount will decide the closing cost depending on various factors. These factors include current credit score, debt-to-income ratio, interest rate, type of loan, and much more.
Here are a few lesser-known reasons to refinance a mortgage:
To get a new mortgage on lower interest rates as well as low monthly payments. However, it is essential for the borrower to have an improved credit score or debt-to-income ratio as compared to the previous one to be eligible for low-interest mortgage options.
In order to shift from adjustable-rate mortgage to fixed-rate loan or vice versa, mortgage refinancing is the best option.
If you are going through a legal separation with your partner, mortgage refinancing can help you to eliminate your former spouse’s name off the loan. Furthermore, if you are buying a home with another friend or partner, you can get their name added through refinancing your mortgage.
If you have talked to a financial advisor and are planning to get your mortgage refinanced, use a free mortgage calculator online. This will help you to know the exact EMIs to be paid for the new mortgage, and you can plan your finances accordingly.