Refinancing a mortgage involves paying the current loan early, by obtaining another loan, which covers its costs. Basically, you take money through another loan, to get rid of your current mortgage. Of course, such a decision is correct and logical only if this refinancing loan gives you advantages over your current one. This can translate into lower monthly installments or an additional amount of money, which you can use as you need. Thus, in addition to reducing the monthly installment, you could also get extra money for various expenses.
The refinancing loan comes with its own rules: a certain monthly installment, a repayment period, clear conditions for granting. You can make a refinancing loan on advantageous terms at your bank, where you already have the mortgage that you want to get rid of, or you can choose another bank. The competition is quite large between banks and you will surely find the best option for you, if you have the patience to carefully research the market. No bank wants to lose customers, on the contrary, it always seeks to attract new ones. So, if you want to get rid of the burden of your current mortgage, you can ask for more offers, until you find the most convenient option.
The procedure by which you can refinance or repurchase a loan is similar to that of granting a loan. Therefore, you will have to meet all the conditions imposed by the bank you have chosen for refinancing and you will draw up a file with the necessary documents.
However, refinancing a mortgage is not always a good idea. That’s why you need to do a thorough analysis to see if it is right for you.
As a general rule, according to a local Denver mortgage company, refinancing a mortgage makes sense when the interest on the loan falls by at least 1%. Hence the 1% rule.
If done well, refinancing can save you quite a lot of money during the loan. To be effective, the interest difference must be greater than the early repayment fee of the old loan and the fees charged when granting the new loan (including insurance policies).
However, the transaction has its own costs: the client must pay a repayment fee in advance and another fee for file analysis for the new loan. Despite the cost of refinancing, due to the lower interest rate, the client will still make savings in the end.
3 things to keep in mind
Make sure to have clearly in mind what you want to achieve by refinancing.
Keep an eye on the banks’ offers at all times.
Make a minimum of effort to compare and do all your calculations before deciding on a refinancing.
Advantages of refinancing your mortgage
First, with a refinancing, you will pay a lower monthly rate, given that the new interest rates currently charged by banking institutions tend to be lower than a few years back. You can also benefit from a shorter lending period, at much more advantageous costs than those existing at the time when you accessed the initial loan, or from a longer repayment term, which will result in a lower rate or getting a higher loan. Last but not least, you can access the refinancing loan at another bank, which can offer you more flexible conditions, adapted to your current financial situation.