Loan against property or mortgage loan is one of the simplest and popular options of raising a considerable amount of money in the time of urgent needs. You can pledge your residential or commercial property as collateral to the lender, which can be a bank or an NBFC.
What is refinancing the mortgage?
Refinancing is a process of paying off your current mortgage loan and availing a new one to replace it. Your existing mortgage loan will be paid off to your current lender, and you can then move to the new lender to consolidate the remaining debt.
Why refinancing the mortgage?
You may wish to refinance your current mortgage loan for various reasons. Here are a few of the most common reasons:
- To get a mortgage at a lower interest rate
- To reduce the loan tenure
- To change the type of mortgage from an adjustable-rate mortgage (ARM) type to a fixed-rate mortgage type, or vice versa;
- To get more funds on your property due to increased market value
- To meet some financial emergency or business expansion
- To consolidate debt.
Refinancing has its own cost. You may have to pay 2% and 5% of the principal loan amount as a penalty for foreclosure, expenses related to the title search, appraisal, and application. Hence, it is essential to reason and decide whether refinancing is a wise decision or not.
Tips to follow while refinancing your mortgage loan
As mortgage refinancing needs good thinking and proper market survey, there are specific tips that can help you make the right decision. Here are six essential tips which everyone must follow while refinancing the mortgage.
- Provide all necessary information to the lender:
It is imperative to furnish all the information that your lender asks. If you have opted for an online mode of application, all the communication between you and the lender will be through email or messages. It becomes essential to check your mailbox and message box regularly and provide the necessary information and document copies to the lender on time.
- It is not wise to follow the 1% rule all the time
The 1% rule says that you should go for a refinancing loan only if you get a benefit of at least 1% in the rate of interest. Many a time, you may get less, but the funds that you get from the loan can solve many urgent financial problems. A mortgage loan EMI calculator can help you in this.
- Prepare proper income documents
Your income documents should be up to date and in order. Every expense made, and every revenue generated should be appropriately documented. The lender will make his decision to refinance your mortgage based on this document. It indicates your ability to repay the loan on time.
- Assist in property appraisal
You must assist the officials who visit your residence for evaluation. Keep the map of the place handy and let him check the whole area thoroughly. You should study the guidelines or ask the lender about the crucial sites or facilities which the lender wants to examine while making an appraisal report.
- Avoid taking extra credits
It is not advisable to go for any loan or credit card while you are negotiating to refinance mortgage loans. It may dampen your chances of getting this loan.
- Keep every detail of the correspondence
Each mail, message, or information from the lender or with the lender is essential. Keep all communication transcripts safe as it may come in handy when fixing the loan terms.
Refinancing a mortgage is a good option if it gives you the benefits you want.