Why would you apply for refinance home loans? If you will be in a better financial position when you do it—that’s the only time that you should consider refinancing.
Here are some of the practical benefits of refinancing your home loan:
You have the flexibility to restructure the loan in such a way as to make smaller payments each month, compared to your original loan payments. If you want to reduce your monthly expenses because you are saving up for a larger purchase, or simply because of a reduction in your income-refinancing can really help. Those who are entering retirement years may prefer to reduce expenses because they will be living on a reduced income. So, they may prefer refinancing the loan in exchange of lower monthly payments. Those needing bad credit loans may want to look into fixing your credit first.
You can refinance your home loan to consolidate multiple debts or to simply use the cash out amount to pay off niggling debts with large interest rates. This will help you stop credit collectors from knocking on your door, or reduce your total debts so as to improve your credit score.
Cover urgent expenses
Refinancing can also help you pay for home renovation to increase your home’s value, pay for a car repair, start a business or take care of future expenses. It is also a good source of investment funds-especially if you want to build your retirement nest egg.
Here are tips to help you maximize the benefits of refinancing your home loan:
Understand the Benefits
You won’t be able to appreciate refinance home loans until you understand how it can help a borrower like you. When are the terms of the original loan no longer applicable or acceptable to you? If:
- it has become more expensive due to your financial situation
- you think you deserve better terms
Refinancing or to refinance second mortgage is like having a brand new loan with an amount and terms based on your capacity to repay and your home’s appraised value. You will simply pay off the original loan and replace it with a new loan with similar or different terms than the original one.
Lenders need you more than you need them
Use this knowledge to your advantage. Lenders want clients who can repay them, and not those who would be bad for their business. So, when you apply for a loan, choose a lender that gives borrowers like you an opportunity to borrow money from them.
There are traditional banks and mainstream lenders that lend money to clients with stellar credit scores. But, when people with bad credit apply, even if they have been doing business with the bank as depositors or UITF investors for a while, they reject the application. It is because those banks are not willing to take the risk of not being paid back on time.
Lending criteria are designed to screen potential borrowers. So, if you don’t qualify, look for another lender that will give you a chance. This way you will not be wasting your time, or putting your credit score at stake by sending a hard enquiry which has a huge impact on your credit rating.
Choose a home loan with a low interest rate
Never refinance home loan to the same lender unless it offers you a much lower interest rate and fees than your first home loan. Look into the new terms and conditions to ensure that the lending company makes the refinancing process easier. Check if it provides lesser fees and clearly indicates how your original home loan shall be paid.
Don’t jump at the first lender offering refinancing
Look around and compare the rates and fees to ensure that you will get the most affordable deal possible. Perhaps you are looking at your personal bank as the easiest route to take, but it doesn’t mean that just because they know your history of banking they will approve your application right away. There are many other lenders available. So find time to check rates. Just make sure that you only compare those lenders that accept application from borrowers like you. Look into their eligibility criteria. Do they require a certain credit, usually paperwork required by most banks like income tax, and other proof of income—will they accept your application?
Make your refinance home loan profitable
Don’t just get a loan to pay off debts or to meet your current needs. Use a small portion of the loan proceeds to be in a better financial position. To do this, you need to do the following:
- Create a financial plan based on your goals. If you want to be able to repay all your credit card debts within a year, make sure that you set aside a certain amount of money each month for credit card debt repayment.
- Prepare a plan with profit and loss projections especially if you use a small portion of your loan to start a small business.
- Make ways to recover losses and set up a backup financial plan to ensure that you will have enough money to repay your loans even when you are going through a financial crisis.