Looking to refinance your mortgage? To make things go as smooth as possible for you, we ran through everything you need to consider.
Take a look at the mortgage you currently have. It might be sucking out a lot of your income. Due to your debt-to-income ratio, it might be harder to refinance your mortgage; lenders would realize that the chances of you being able to pay back would be lower.
If the current mortgage you have to pay is a max of 28% of your gross income, the chances of getting approved would be low. The easiest way to prevent this is by asking for a raise.
When it comes to the total debts you may have, a ratio of 36% or less would be needed. If you look around, you’ll find some private companies accepting debt-to-income ratios of up to 43%. However, they’re not that common.
Almost all countries have adopted credit-score systems. The purpose of refinancing mortgages is that you’d be able to make payments that are lower than the home loan you currently have. What would help you make the least payments would be your credit score. The higher it is, the lower the interest you’ll be met with.
Most of the time, lenders want to see scores of 760 or higher. If your score is very low, your application might get rejected. After all, it is so low because you have a history of not paying debts back.
Your credit score would affect the interest you’ll be paying. Each financial institution would also charge different rates. As there are so many lenders to work with, there are different types of mortgage refinancing, with different rates. The ultimate goal is to pay less than your current mortgage, so look around.
Speaking of the mortgage you have, how much would the penalty for breaking mortgage be? Hopefully, you’re not refinancing a year into taking the home-loan.
How is your home-equity? This is the property value subtracted from how much you owe your mortgage. Home-equity can rise when property value goes up. Conventional lenders want to see good equity – they won’t work with you otherwise. But there are some government plans that let you refinance even if your equity isn’t that good.
Know that there are ways you can raise property value. Add modifications to the home – those that are most worth your time are kitchen renovations. Depending on the state of your neighborhood, property value would also differ. If more houses are done up well, the houses in the area would go up in price.
To summarize, there are many things to consider if you’re thinking of refinancing your mortgage. From the things you’ll have to keep in mind, know that how much the refinanced loan would cost you depends on your credit score. The higher the score, the lower the interest you’ll be met with. The lender you’re working with would influence how much you’d be paying too – everyone has different rates.