While most people don’t enjoy having to spend the time and effort that’s required to get a home loan, it is important to remember you don’t have to stick with the same mortgage forever. In fact, while you may groan at the thought of having to go through the process again, refinancing your mortgage can often be a good idea for numerous reasons. For example, you can get a better interest rate, reduce your account fees, get access to additional funds to draw out if your property value has increased, and more. Read on for some key tips you can follow to get the best refinance deal for your home today.
Ensure Your Paperwork Is in Order
Before you even think about applying for a refinancing deal, make sure all the necessary paperwork involved with the process of applying for a new loan is in order. There are numerous documents you want to have up-to-date. For instance, it is typically necessary to have your last few years’ worth of tax returns on hand so that lenders can see proof of your income and expenses history, and your likely borrowing capacity.
You will usually also need to have documentation to prove your current income level, whether through working in a job or being self-employed. Get together your last 30 days or more of pay stubs or trading history (including balance sheets, tax returns, profit-and-loss statements, and the like) for your business.
Another thing to organize in advance is a list of your assets and liabilities and the various paperwork that goes with them. For example, have a file covering credit card statements, student loans, your current mortgage, any other property or business loans, car loans, and the like; as well as details on assets you own and their current values, such as stocks, bonds, savings accounts, mutual funds, other real estate, art, retirement accounts, and businesses.
Check Your Current Credit Rating
Another good thing to do before you look to refinance a home mortgage is to check your credit rating. You can do this for free online or pay a company who specializes in the service to provide you with a comprehensive report. While lenders will look into this themselves when you apply for a new loan, it helps to look at this information up-front so that you know your financial position.
After all, if your credit score isn’t as high as you thought, there may be no point applying for a refinancing arrangement until you have worked on getting your rating up. Unfortunately, a bad result can disqualify you from being given a new loan, or mean that you have to pay a much higher interest rate.
Keep in mind that sometimes financial misunderstandings or mistakes have occurred which isn’t your fault and which can be easily fixed to improve your rating. Alternatively, you might have an outstanding payment due that you have simply forgotten about, that is affecting your score. The sooner you know your position the better, so you can do something to improve it if need be.
No matter how your credit score is looking, if you go about paying off as many debts as possible before applying for refinancing, this will help you get a better deal. It will improve your debt ratio and not only make it more likely that you’ll be approved for a new loan, but also that you will be offered better terms (such as a lower interest rate and less expensive application fees) from lenders.
Check the Fine Print on Your Current Home Loan
Another refinancing preparation step to take is to go over the fine print on your current home loan. You need to check the paperwork to see what prepayment penalties may apply if you go about paying out your loan early. The types of charges leveled by lenders in this area can vary enormously, so don’t just assume what might be involved. While some penalties stay the same no matter when you payout your loan, others can lessen over time, or be dispensed with completely. If you have to wait another six months to avoid having to pay out hundreds or thousands of dollars in fees, it may be worth considering holding off on your refinancing plans.
Alternatively, if you will face costs regardless, or if the fees will be charged for the next few years and you don’t want to wait that long, sit down and work out the numbers. How much money could you potentially save by refinancing to a lower interest rate, and is this more than the prepayment penalty that you will have to pay to close your current mortgage now?
If you do have costs to factor in, talk to your new lender to see if they can reduce their application fees or interest rate somewhat. Negotiation is particularly feasible if you have a top credit rating and are organized when you approach lenders.