17 Jul 5 Things To Do Before Refinancing Your Mortgage
Planning to refinance your property for a lower interest rate? Homeowners who have mortgages that were originally obtained when interest rates were higher are being encouraged to refinance them by the comparatively low interest rate. But whether or not you should refinance frequently depends more on your unique financial and mortgage situation than on the state of the market.
In this blog, we have suggested few things to do to help you increase the likelihood of your mortgage refinance application approval.
1. Stay Informed of Mortgage Interest Deductions
Homeowners may have a lower tax payment if they are eligible to deduct a portion of their mortgage interest on their federal tax returns. This is particularly true when the loan is first taken out, as interest makes up the majority of your monthly mortgage payment. Refinancing your mortgage for tax reasons alone is rarely a good enough argument, though.
2. Know Your Home Equity
The portion of your home’s value that you own is called home equity. It is an important consideration when you refinance your house. Equity can be calculated by deducting the amount owed on your mortgage from the fair market value of your house. Although they frequently grant loans with less equity, lenders typically want borrowers to have at least 20% equity. However, if your equity is less than 20%, you should anticipate a much higher refinancing cost.
3. Inquire About Mortgage Insurance
If your equity is less than 20%, lenders will usually need you to obtain private mortgage insurance, or PMI. If you miss payments, this insurance enables the lender to acquire it. If you currently pay PMI on your current mortgage, you might not find it too bothersome to pay it again when you refinance. But if their house has lost value since they took out the initial mortgage, homeowners with little equity might have to pay PMI for the first time.
4. Determine Your Debt-to-income Ratio
The debt-to-income ratio is calculated by dividing your total debt payments by your total income. Over the past ten years, lenders have gotten noticeably tighter with regard to their debt-to-income ratios. The optimal ratio of your total debt to income is no more than 36%, but if your other risk indicators are sufficiently favorable, you might be able to refinance even if it is as high as 43%.
5. Compare Rates & Terms
The interest rate is a major consideration for borrowers when they refinance their mortgage. When making your choice, you shouldn’t disregard the other loan terms, particularly the loan’s duration. Your monthly payments will be reduced by a low interest rate and a long payback period, but the overall cost of your refinance will be lower if the loan has the shortest duration.
So, these were the top five things to consider when planning to apply mortgage refinancing in Surrey. If you are looking for a reliable refinance broker in Surrey to help you with the refinancing process, rely on none other than Satbir Bhullar. For more details, contact us today.