For some people, mortgaging a home is just one step in the process of owning property. Often, loan holders choose to also refinance their home for the purpose of reducing the original interest rate. Whatever the rate you are looking to reduce your mortgage interest rate to, searching “mortgage refinance” shouldn’t be a pain. The language and process may seem tough but we have broken down everything you need to know and the ways to simplify this process.
You should not be too scared to try to mortgage refinance your home or business property. We are here to walk you through it.
Mortgaging and refinancing your home are terms that can sound scary and important; you wouldn’t want to make a wrong move because so much of your own income is going into that decision.
The term mortgage and refinance are different but closely related to each other. A mortgage is a legally binding agreement between an individual or business and a bank or other creditor for use in the purchase of property. The bank or creditor will lend money in exchange for interest that must be paid back on the loan and collateral in the form of the title of the property. With this system in place, the bank or creditor can be ensured that the money will be paid by the mortgage holder because they technically own the property until it is. The title will become void upon the payment of the debt.
In New Zealand, a mortgage requires a deposit of a portion of the entire loan. Once that is paid the mortgage holder will pay a fraction of the loan and an interest rate amount in monthly or more frequent payments. You can also predetermine what the interest rate stays at for a certain amount of years as well, referred to as the fixed interest rate period. If this is the case, a mortgage holder has the security of knowing that the interest rate won’t change unexpectedly.
While almost any property can be mortgaged, households are most common, followed by business properties.
When someone refinances their existing mortgage, it means they are revising the payment schedule and agreement for repaying debt. In doing so, the old loan is paid off and replaced with a new loan offering different terms for repayment.
Generally, you choose to refinance an existing loan if you are reducing your current rate. While some professionals will say that it is worth refinancing your home if you can get an interest rate that is 2% lower, it is becoming increasingly more common to refinance even if you only lower your rate by 1%.
Other reasons for choosing to refinance are to reduce the duration of the loan or switch from a fixed loan rate to an adjustable-rate mortgage, which has flexibility to change.
There are several different types of refinancing options. The type of loan a borrower decides on is dependent on the needs of the borrower. The most common type of refinancing is called the rate-and-term. This occurs when the original loan is paid and replaced with a new loan. Another type of refinancing is the cash-out. Cash-outs are common when the underlying asset collateralizing the loan increases in value.
The transaction involves withdrawing the value or equity in the asset in exchange for a higher amount. In other words, when an asset increases in value on paper, you can gain access to that value with a loan rather than selling it. This option increases the total loan amount but gives the borrower access to cash immediately while still maintaining ownership of the asset. Another refinancing option is referred to as the cash-in. The cash-in refinance allows the borrower to pay down the loan for a lower loan-to-value ratio or smaller loan payments.
One of the major risks of refinancing your home comes from possible penalties you may incur as a result of paying down your existing mortgage with your line of home equity credit. In most mortgage agreements there is a provision that allows the mortgage company to charge you a fee for doing this, and these fees can amount to thousands of dollars. Before finalizing the agreement for refinancing, make sure it covers the penalty and is still worthwhile.
Along these same lines, there are additional fees to be aware of before refinancing. These costs include paying for an attorney to ensure you are getting the most beneficial deal possible and handle paperwork you might not feel comfortable filling out, and bank fees. To counteract or avoid entirely these bank fees, it is best to shop around or wait for low fee or free refinancing. Compared to the amount of money you may be getting from your new line of credit, but saving thousands of dollars in the long run is always worth considering.
The first thing you must do when considering refinancing is to consider exactly how you will repay the loan. If the home equity line of credit is to be used for home renovations in order to increase the value of the house, you may consider this increased revenue upon the sale of the house to be the way in which you will repay the loan. On the other hand, if the credit is going to be used for something else, like a new car, education, or to pay down credit card debt, it is best to sit down and put to paper exactly how you will repay the loan.
Also, you will need to contact your mortgage company and discuss the options available to you, as well as discussing with other mortgage companies the options they would make available. It may be that there is not a current deal which can be met through refinancing that would benefit you at the moment. If that is the case, at least you now know exactly what you must do in order to let a refinancing opportunity best benefit you. When refinancing, it can also benefit you to hire an attorney to decipher the meaning of some of the more complicated paperwork.
Most banks and lenders will require borrowers to maintain their original mortgage for at least 12 months before they are able to refinance. Although, each lender and their terms are different. Therefore, it is in the best interest of the borrower to check with the specific lender for all restrictions and details.
In many cases, it makes the most sense to refinance with the original lender, but it is not required. Bear in mind though, It's easier to keep a customer than to make a new one, so many lenders do not require a new title search, property appraisal, etc. Many will offer a better price to borrowers looking to refinance. So odds are, a better rate can be obtained by staying with the original lender.
You can easily compare mortgages with tools, such as Glimp’s NEW, FREE refinance calculator, in order to save time and get the best idea of the options you are faced with. Comparing multiple lenders gives you the most complete view of your options.
Within a bank, there are also different mortgage interest rates, deposits and other details that can increase the number of options you have. Using a tool to help you compare lenders and compare mortgages, all at once, in an easy to navigate, adjustable platform can save you tons of valuable time. No one has hours to search for the perfect mortgage plan.
Glimp has been around for New Zealand residents for some time. Originally for finding utilities such as broadband plans, power providers and credit card companies, Glimp’s newest service is a mortgage finder. Functioning the same way as their other service locating platforms, the mortgage finder asks just a few questions and provides you an extensive list of potential lenders in less than five minutes.
You can use Glimp whether you are looking to take out a mortgage on a home or business for the very first time or if you are searching for the best lender and plan to refinance an existing loan.
Answer questions based on the total loan you are looking to take out, the deposit you want to put down for your mortgage and the terms behind your interest rate. Glimp will calculate your bank, interest rate and monthly payments and lay them out easily for you.
These are the pros and cons, the ins and outs of refinancing your home or other property. Use Glimp’s EASY and most importantly FREE tool to get a lower interest rate today.
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