It is becoming more popular to refinance your home loan these days. This is because the mortgage industry is such a competitive place. New products are coming out every day that aims to make it easier for the customer in terms of cost or conditions. Indeed, most financial institutions encourage people to shop around and consider refinancing their home a few times if they are planning to stay in it for any length of time. Gone are the days (or at least they should be) when you used to have a mortgage with one lender and then forgot about it until it was paid up. This article will explain why you might want to refinance your home and how to get a better refinance rate.
There are many reasons why you might want to refinance but the bottom line should be that you are better off financially because of it. Working this out is often quite complex and several factors have to be considered before you can draw any conclusions. For example, the length of time that you plan to stay in the house after the refinance can determine whether it is worthwhile to refinance. Getting a lump sum to pay off other debts that have a higher repayment rate might also make sense financially, even though you might have to pay more on the refinanced mortgage. It’s confusing but if you know your financial goals then it is easier to make these decisions.
Having said this, if you decide that you are going to refinance your home loan then you want to get the best refinance rate available. Again there are no big secrets about getting a better rate. You will get a better rate, or at least be in a better position to shop around if your financial situation has improved from the last time you took out a mortgage on the property.
There are four ways to make your financial situation better.
Improve your credit score – This is easy to do if you use your credit cards responsibly and pay them off on time. Another factor that can influence this is to pay the monthly mortgage repayments on time. Having a good credit score can also make closing costs and any other associated fees for the refinance cheaper.
Increase your monthly take-home pay – hopefully, you will have progressed in your job and got a pay rise or promotion. Otherwise, you could take on another job or run a side business at home. Someone that has a bigger income is less of a risk to lenders hence they can give a better rate.
Get more equity in the property – most properties go up over time but this is not always the case. Renovating the house could add extra value and hence more equity. Lenders also like equity because it is seen as more of an asset and less risky.
Lower the principal amount of Refinance loan – If you have been paying capital and interest on the current home loan you may be able to reduce the principal for the refinance mortgage. This can get you are better rate because there is less money needed.