Drawbacks of refinancing your mortgage loan
Mortgage refinancing may be new to the market but has become very popular among home owners. Every time there is a considerably significant drop in the mortgage rates, lenders have to deal with endless refinancing applications. Simply, refinancing involves taking on a mortgage to clear your existing mortgage. The newer mortgage has better terms that are favourable to the property owners. Some of the main reasons people take refinancing loans include, to lower interest rates on the payments, increase monthly equity, get rid of private insurance, improve credit scores and convert the mortgage rate payments among others.
Consider benefits as well as drawbacks
Just like the benefits, the disadvantages on refinancing are important to consider before making a final decision. One thing you might hate about refinancing is that you will have to apply for another mortgage. It is exiting to apply for a refinance with aims of lowering the interest and payment rate. What you do not realise is that. if there has been changes in your credit score and income since your first application, you are likely going to fail.
The mortgage lenders will look at your financial information and credit card report to check whether you qualify. If your credit card score has dropped or you faced a reduction in your income, job transfer or job loss you are less likely going to get the loan from the lenders. Keep in mind that an existing mortgage will not guarantee you an approval from the lenders. To verify your income and job, lenders ask for recent pay checks and tax returns.
Getting around hurdles
One of the biggest hurdles that will come with refinancing is the cost you will incur to get the new loan. Most people are usually not ready to pay the closing costs of about 4-6% of their loan balances. Other common fees include the application, home appraisal, credit report fee, loan origination and discount point’s fees. Most mortgage fee payments should be made directly out of your pocket but some lenders are known to include then in your loan balances. Some loans will need to pay an upfront fee for insurance on your mortgage.
Home appraisals are commonly known to estimate the value of a property; you cannot escape them when you are trying to refinance a home. They use the most recent sales within the neighbourhood to estimate and assess the value of your property. The results you get from the appraisal will determine whether you get the deal or not. Most lenders will require some sort of equity in order to qualify you for a refinance.
A low appraisal will ruin nay chances you have of getting a new mortgage with better terms. Some appraisers will conclude that your property is of less value than what you owe making the lenders reject the refinancing request. In rare cases, the appraisers use the foreclosed homes in your neighbourhood for comparison to determine the value of the home.
Refinancing your mortgage may be beneficial but is one of the most difficult processes you may go through. You will need to provide certain documents and pass some difficult requirements.