None of us enjoy going through the rigmarole of getting a home loan.
Photo by Marten Bjork on Unsplash
As such, it can be a struggle going through a similar process for a refinance on our mortgage.
However, if you want to be sure you’re getting the best deal possible and can save yourself some money, you should put in the time and effort to source a better home loan offering.
Refinancing can help you enjoy reduced interest rate costs, lower administration fees, and the potential to access some of the equity you’ve built up in the property to renovate it or invest elsewhere. To get an excellent refinance deal, here are some key things to do before you start applying.
Check Your Credit Score
First, check your credit score before talking to a lender. Financial institutions read this data before they decide whether or not to approve a loan. They also use the information to determine what interest rates and terms and conditions to offer applicants. The better your rating, the better chance you have of your refinancing going through and with good terms.
You can request a free credit rating report once per year or pay for a more detailed option. Use the details you read to see if there are any issues with your score that you can address. For example, you could have an overdue account you didn’t realize you hadn’t paid off. Or, you might find a discrepancy on your account where a charge has been put erroneously under your name.
Examining your credit score can show you if you should pay down your total debt before applying for a loan. If your debt-to-credit ratio is high, such as over 20 percent, you might struggle to be seen favorably by lenders. Getting this percentage down can make a big difference to your chances of having a new loan approved.
Work on Paperwork
You might think refinancing a loan is much simpler than getting a mortgage in the first place, but in most cases, it still involves submitting reams of paperwork. Before you lodge a new loan application, get together documents to prove your income, such as paychecks or business profit and loss statements, balance sheets, bank account info, etc. You’ll also need at least a few years’ tax returns to show a lender.
Most banks and other financial providers ask to see a detailed list of assets and liabilities, too. You may need to show your credit card and bank account statements and records of trusts or businesses owned. Lenders might ask to see data on your mutual funds and savings accounts, stocks and bonds, properties, and retirement account records. Also, get paperwork organized regarding car loans, personal loans, student loans, and home loans you currently have.
The more thorough and organized you are with your paperwork, the more quickly you can provide what lenders need to approve you, and the smoother the process should be all around.
Understand Exit Fees and Conditions
Before you start looking for a new refinancing deal, read all the fine print on the mortgage you have right now. It’s vital to know if you’ll have hefty penalties to pay out your loan earlier than the predetermined term and, if so, how much this will add up to. Terms and conditions can vary significantly, so it could be nothing to worry about or a small fee easily offset by the amount you can save by refinancing to a lower interest rate contract.
Sometimes the charges might be so high that you’re better off sticking with your current loan for now and waiting until the fees lessen or the improved refinancing deal you get makes the transition worthwhile. Some penalties lessen over time, while others remain the same for the duration of the mortgage.
Talk to your current lender, though, to see if there’s any chance of renegotiating with them. If not, chat with other lenders and let them know your predicament. Some organizations will waive certain fees on their end to cover some of your mortgage prepayment penalty in order to win your business.
Once you’ve gone through the above steps, allow yourself enough time to research different lenders and their offers. Try not to rush this process, as you might miss out on spotting an excellent deal. Search online for rate options in your area by inputting “Mt. Pleasant refinance” or “Boston loan rates,” for instance.
Also, ask family, friends, and colleagues for bank recommendations or read magazines, papers, blogs, and forums for ideas of lenders with low home loan rates at the time.
You might be keen to get a new mortgage sorted out ASAP, but spending the time and energy on completing the above tasks before you apply will save you in the long run.