In order to save money, mortgage holders are looking to refinance. But most of them don’t take the time to do their homework and therefore, resulting in not being able to save as much as they could have.
Before deciding on a loan, take a look at the do’s and don’ts first if you think you can find a better home loan and if you are considering refinancing.
DO speak with your current lender before you refinance. Your lender may be able to meet your requirements if you are looking for a more competitive interest rate or a different home loan product and it will also save time and paperwork.
DON’T send in several home loan applications to different lenders. It is recommended that you do your research and compare different lenders. However, each lender would request a copy of your credit report if you send in multiple applications. Also, each request would leave a hit on your file and that can have a detrimental effect on your borrowing power as lenders will not know whether you were declined or you just changed your mind. It would be best to only submit one application with a lender that you plan to proceed with.
DO consider a fast re-fi. Fast re-fi are now being offered by many lenders. It can help cut the refinancing process to days instead of weeks. All communication is done electronically and all work is organised between your current lender and your new lender.
DON’T expect that refinancing will save you money. If you refinance without doing any further research and just find a lender with a cheaper rate, you could actually find yourself not being able to save up anything. Refinancing includes other fees such as establishment fees for your new loan and closing fees for your old loan. It is also crucial that you look into the new lender’s ongoing fees and home loan features to ensure that you would be able to maximise your savings.
DO organise your finances before you refinance. Keep in mind that not just because you were approved for a home loan before doesn’t necessarily mean that you will be approved for a new home loan. Take the time to pay off as much debt as you can and improve your repayment history if you’re aware that your finances are not in the best shape. Getting organised with your finances before refinancing will not only improve your chances of getting a home loan, but will also help you get a more competitive interest rate.
DON’T overlook the Lenders Mortgage Insurance (LMI). There’s a good chance that you will have to pay Lenders Mortgage Insurance if you want to refinance your home loan but want to borrow over 80% of the property’s value. It’s specifically important if you’re looking to consolidate your debt into one home loan.
DO opt for a shorter loan term. You may want to consider shortening your loan term when refinancing depending on how many years you have left on your current loan and also your present income. If would be able to handle it, though you may have a higher repayment amount, you would be able to save a lot of money in interest and also reach your financial freedom sooner.
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