How To Refinance A Mortgage

The terms re-mortgaging and re-financing can sometimes be confused. A re-mortgage is when you choose a different mortgage lender to your existing provider whereas a re-finance loan can be taken out with your existing lender or a new one.
So why would you re-finance your mortgage and what steps should you take to begin the process?

Why re-finance your mortgage?

The main reason to re-finance is to lower the interest rate on your existing loan. You may also be able to shorten the length of time you have to pay off the mortgage or change from a fixed rate mortgage to a variable rate or vice versa.

If you are planning on building an extension on your home and wish to use the equity to do so, then re-financing your mortgage is an option.
If you have a number of debts such as credit card debt or you want to make a large purchase like a car, you can obtain the equity from your home to pay for it by re-financing.

When is it a good time to think about re-financing a mortgage?

If you are sure that you wish to re-finance your home, check the market conditions first. If interest rates are particularly low then it is a good time to arrange a re-financing.
Watch out though.
There may be a clause in your original mortgage contract which states that a fee may be charged for re-financing and obtaining your equity. Make sure that you have money left over after paying this fee otherwise it is not worthwhile.

In 2012, mortgage interest rates are near all-time lows and are likely to remain attractive for some time in the future. There are good opportunities for home-buyers who looking for a new mortgage and existing homeowners who want to refinance an existing obligation.
With that opportunity in mind, please read more to know about the benefits and hurdles of this re-financing goal.

What options do I have?

There are four main options for re-financing your home.
The first is cash back re-financing where you are re-finance your mortgage for more than you owe and the equity (the difference between the two) is given to you.

The second option is to get a lower interest rate if the rates have decreased due to the market conditions.
You can also pick a shorter term loan which means that you will pay more each month, but will pay less interest in the long-term.

If you are currently struggling financially, a longer term loan might be best. This way your monthly payments will decrease and improve your financial situation.
So how do you begin re-financing your mortgage?

1. Know why you want to re-finance

Do not go into a re-finance deal if you are unsure of your responsibilities and why you want to (or need to) go through with it. If you want to put the equity into the house and therefore increase its value, it can be a good idea.
If you have other debts to pay and wish to use the mortgage to pay them, it can be a bad idea. More often than not, you will pay more long-term than if you merely paid off your debts.
Think carefully before you are re-finance, especially if you are new to the property market as it can be easy to get into a re-financing situation without actually having a good reason to do so.

2. Know what will influence the rate

There are several things that you will need to check before you begin researching a potential lender. Your credit score will affect the rate that you will receive so it is a good idea to apply to a credit reference agency and check your credit rating. The size of the loan you want will also affect the rate as will your income and any outstanding debts.

3. Know what type of loan you want

First, decide how long you would need to pay off the loan and how much you really need to borrow. Then, decide whether you would prefer a fixed rate or a variable rate. There may be other fees involved so make sure you know what type of loan you want and whether you may be exempt from any of these additional fees.

4. Understand the rates

Sometimes advertised rates are not entirely reliable. To make sure you will definitely receive the rate, read the small print and have the lender give you a detailed printout of the terms and conditions. This way you won`t be lured into a deal which will not benefit you in the long-term.

5. Collect your documents

There are some things you will need to get together to give to a lender and give them a picture of your finances. These include the deeds to your house, the paperwork for your current mortgage, your insurance policy, your wage slips and a list of any assets you have and debts you have outstanding.

6. Choose a lender

You can research other lenders or you can check what the interest rates are with your current lender. This way you will get an idea of the market conditions and the interest rates offered by other providers.
It is not a good idea to enter into a re-financing situation when a provider is attempting to sell you a loan; do your own independent research and only enter into a re-financing deal when you feel that the time is right.
Shop around and choose an independent broker for unbiased advice. Also, ensure you are fully aware of the credibility of the other lenders you look at.

7. Fill out an application

Once you have chosen your lender, the application process begins. This is a similar process as the process of applying for your mortgage so you will still have to qualify for the loan and be accepted by the provider.

8. Have your home appraised

Your home will have to be appraised so that your lender knows how much your home is worth. Afterwards, a copy of the appraisal will be sent to the lender and an interest rate is finalised.
You will receive your official loan documents to sign.
Lastly, you will receive your funding.

A mortgage calculator is a great tool which will help you calculate the costs of re-financing your mortgage and show you whether you will benefit from it. Shop around and make sure you are doing what is best for your situation financially before going into a re-financing deal.