Mortgage refinancing is one of the many strategies people employ to stay financially afloat. It allows them to take advantage of better interest terms and mortgage refinance rates so they can manage their finances more easily.
If your current economic status is requiring you to explore this provision, here are five things you need to understand before getting a new mortgage loan to replace your existing one.
1. You need to have a good credit score.
This was necessary for getting your first loan, but it’s just as important for refinancing.Lenders today are sticklers for good credit standing and they reserve their best terms for applicants with solid credit scores. If your credit score’s nowhere near 740, you may want to try to improve it first if you wish to increase your chances of getting approved for a mortgage refinancing program.
2. Loan companies will probe into your debt-to-income ratio.
One of the reliable indicators of financial health is the quotient of your monthly debt payments when divided by your gross monthly income. Your DTI will indicate if you’re capable of paying off a loan, which is a primary interest of any loan provider.
Basically, the lower your DTI, the better your chances are of being approved to refinance mortgage.
What should be your DTI then? Studies of mortgage loans indicate that loan companies consider a DTI below 36 percent good.
3. Loan companies have different approval systems.
Mortgage loan companies do not function the same way. Some are much stricter with their requirements, while there are those that are more accommodating for they have set up a wider selection of refinance mortgage programs.
It’s crucial to take the time to compare, especially if you wish to pay off and manage monthly payments more comfortably.
4. Your equity can be the biggest hurdle to getting approved for a mortgage refinance program.
Mortgage experts say that the problem is about how certain home values continue to drop. If this is the case with your home, it’s possible that the down payment you made a few years before could have been used up already. Therefore, you currently have more mortgage debt than what your house is actually worth.
This is an issue for most mortgage companies but there are some that can help you work this complication out. If you find one, set up a meeting with its consultants to find out what actions you can take to be approved.
5. Lastly, lower monthly payments don’t always mean lower total costs.
You have to do the math carefully because certain programs with stretched out repayment terms may end up costing you more in total.
If you want a total that will save you money, at times, it’s better to pay a higher monthly for a shorter term.
This will require you to tighten your belt, but you’ll be free from the financial burden earlier and you’ll be able to replenish your financial pool faster