Things happen, and there will be times when you need to get a new loan to pay off an older loan. The process is known as refinancing, wherein borrowers may acquire a more affordable interest rate and, at the same time, improve their credit scores.
Refinancing is considered a prudent way to fix the issues with your finances. However, it is important to be knowledgeable about the refinancing process. It should be deemed a serious decision to make, so make sure to know the dos and don’ts when refinancing.
The dos of refinancing
Analyse your finances before refinancing
If you want to get easily approved in refinancing, make sure that your finances are in good status. Pay off your current debt first to rebuild positive credit history and improve your credit score, too. Make sure to also check your credit report for any errors before refinancing.
Perform a cost comparison first
It is crucial to compare several refinancing costs carefully. Make sure to double-check the loan’s interest rates, finance charges and other possible costs set by the lender. Comparing costs and interest rates is critical so that you can find the best offer from a reliable lender.
Get refinancing if the new loan offers lower interest rates
To be able to get a better refinancing loan, make sure to choose a new loan that offers a lower interest rate and a shorter or same term as the previous loan. When you get a longer-term loan, you may end up paying higher accumulated interest.
Beware of scams
Do not be tempted with lenders who try to consolidate all the loans in one mortgage, save you from foreclosure or sell the house to repurchase it. Be mindful of the hidden costs that may not be discussed with you by the lenders.
The don’ts of refinancing
Do not submit mortgage applications to various lenders
Although it is advisable to compare different mortgage refinancing options, you should not send multiple applications to different lenders. Each of them will require you to send a credit report, so it will be a tedious task for you and may accumulate clutter on your file.
Also, sending too many applications will negatively impact your borrowing score. As much as possible, submit only one mortgage application to the best lender.
Do not be fooled by advertisements
Advertisements are all around when it comes to mortgage refinancing. Most of them have great offers but don’t get lured by them easily. Some lending companies are not truthful on their charges and fees.
Do not refinance a home for a higher amount than its market value
You may get tempted when a lender proposes a loan amount that is higher than your home’s value. Don’t just go for it quickly. You’ll end up paying more on high interest rates and may lead you to early foreclosure.
Do not refinance based on the pressure brought by a credit card debt or a debt collector
Don’t be intimidated by a debt collector who wants to get paid. Do not accept refinancing just because it seems like a quick way to pay your credit card debt. You’re more likely to get behind your payments and end up losing your home instead.
Keep in mind that you should refinance a home loan to help you save more, making your life more convenient. Ensure the things you should do and you shouldn’t before signing a new mortgage loan.
Need help with mortgage refinancing in Perth, WA? We can help! All of the finance managers at FinanceCorp are fully qualified, trained and experienced mortgage professionals who live and breathe finance. Contact us today!