How competitive is your interest rate? Whether your debt is for your home, personal or investment reasons, your loans should bereviewed annually. You should especially be reviewing your position at the expiry of any fixed rates that you may have as the lender usually reverts the loan to the standard variable rate; a rate that is often much higher than other rates available in the market. Another reason to review may be that a loan no longer suits your requirements, or your circ*mstances have changed. There is tremendous competition in the banking market, and most borrowers could find a lower rate than what they currentlyprovide and by refinancing your loan you will be able to reduce your ongoing commitments. However, in some cases there are hidden costs, fees or limitations,therefore it is important to speak withyour lending specialist to ensure you are fully aware of the implications, and understand the fees, charges and comparison rates. Consolidating Debt If credit card debtor personal debtis crippling your cash flow you may need to look at consolidating some of your debts. Credit card debt isine of the mostexpensive interest rates on offer and by rolling that debt into your home loan you can save on the interest rate and help to reduce your regular repayments. Furthermore, it is also easier to manage debt by having one single repayment rather than multiple payments throughout a monthly period, thus giving you back some control over your own money. Unlock your equity Aside from debt consolidation, you may wish to use some equity in the property. This may be for improving your home, buying a car, investing some funds or as an emergency for the future. Many people also unlock their equity to use as a deposit when buying a home. The process to do this may be as simple as drawing down a new loan or increasing your existing facility, or it could involve reassessing your entire situation and saving you money in the process. Refinancing methods A refinance can be external or internal. An external refinance is when a new loan is taken with a new bank, and the old loan is closed with the old bank. In essence, the debt is taken over by the new bank. This often occurs when the borrower is dissatisfied with their old bank or the bank does notprovide a loan that suits the clients’ needs. An internal refinance is where the debt is taken over within the same bank. In other words, a new loan is taken and an old loan is cleared but it is done by the same bank. Again, this could be due to a limitation of the loan, but it could simply be an increase of an existing facility. For a more steadfast solution, some lenders offer a rapid refinance option by settling on the refinance without exchanging the documents with the old bank. There are many options with refinancing; yourMortgage Express Finance Consultant can advise you on the most suitable option.
FAQs
Is it hard to get approved for a refinance? ›
Your credit score gauges how likely you are to repay a loan and is usually measured on a scale from 300 to 850. To be approved for a conventional mortgage, you typically need a minimum 620 credit score. If your score is below the mid-600s, however, you may have a harder time qualifying for a refinance.
Does refinancing hurt your credit? ›In conclusion. Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months ...
Why do I keep getting denied for refinancing? ›A lender may reject your application if it believes that your income is too low or unstable to handle the payments on a new loan. Having some recent instability in your job can also make it difficult to get approved.
What is not a good reason to refinance? ›Key Takeaways. Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.
How much income do I need to refinance? ›To qualify for a refinance, take a look at your debt-to-income ratio. The new monthly mortgage payment shouldn't be more than 30% of your monthly income. To refinance $400K over a 30-year fixed term with an interest rate of 3.5%, you'll need an income of approx. $6000/month.
What not to do during refinance process? ›- Failing to do your homework. ...
- Assuming you're getting the best deal. ...
- Failing to factor in all costs. ...
- Ignoring your credit score. ...
- Neglecting to determine your refinance breakeven point.
You may be wondering how often underwriters denies loans? According to the mortgage data firm HSH.com, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types.
At what point is it not worth it to refinance? ›Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.
What do you lose when you refinance? ›You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.
How much do interest rates need to drop to refinance? ›If you have a mortgage with a higher balance and rate, a drop of 0.5% interest could be worth refinancing, according to Dell. "For a lower balance, rate and term refinance, it may be at least 1% or more to be worth your time and money," Dell says. It's also important to consider how long you plan on living in the home.
What is the downfall of refinancing? ›
A longer-term loan could result in lower monthly payments, but higher overall costs. For instance, if you have 10 years left to pay on your current loan and you refinance to a 30-year loan, you could end up paying more in interest overall to borrow the money and have 20 extra years of mortgage payments.
What disqualifies you from refinancing a car? ›Having an LTV over 100 percent doesn't mean it's impossible to get an auto loan refinance, but it can make it more difficult. Most lenders look for an LTV below 125 percent. However, the lower your LTV, the better interest rate you can get.
Is it easier to refinance or get a loan? ›Refinancing is generally easier than securing a loan as a first-time buyer because you already own the property. If you have owned your property or house for a long time and built up significant equity, refinancing will be even easier.
How long does it take to approve a refinance? ›A refinance takes 30 to 45 days to complete in most cases, but it could always require more or less time depending on a variety of factors. For example, appraisals, inspections and other services that third parties handle can slow down the process.
Do I need 20% equity to refinance? ›A general rule of thumb is that you should have at least 20% equity in your home if you want to refinance. If you want to get rid of private mortgage insurance, you'll likely need 20% equity in your home. This number is often the amount of equity you'll need if you want to do a cash-out refinance, too.