Thursday, 19 May 2016

All You Need to Know about Mortgage Refinancing

Mortgage refinancing is whereby a borrower pays off his or her initial loan, a situation that paves way for the possibility of an additional loan to be given to them. This is often done to lower monthly repayment rates and charges. In some instances, refinancing is done when a borrower wants to shift to another mortgage company. To refinance, it is recommended that the client has equity on his or her home. Ordinarily, this is usually the discrepancy between the money owed to a financial institution and the value of the property.

Types of Mortgage Refinances

Before refinancing, home owners ought to be made aware of the different avenues that they can take during the process. Basically, there are two refinancing means.

a) Rate and Term Refinancing

This has been proven to go a long way in saving funds. It typically is the act of refinancing the remaining balance for a much lower interest rate and at an affordable term. In this case, the term refers to the repayment period that the borrower will take. Rate and term refinancing helps borrowers to get lower interest rates.

b) Cash-Out Refinancing

This refers to a situation whereby the borrower takes out the new mortgage for a higher amount than what he or she owes the mortgaging institution. Under normal circumstances, the difference is often taken in cash and then used to pay off any outstanding debt. This refinancing type has the advantage of helping borrowers lower the interest rate that is payable on their credit cards' debt. Get more details on reverse mortgages california.

Factors that Influence Mortgage Refinancing

a) Employment

Borrowers ought to consider the amount of time that they have been in employment. Those who have been constantly employed stand a higher chance of receiving refinancing because they have a regular income. There are however some lenders who are lenient and allow forbearance. These lenders permit the mortgagees to suspend payments or make fractional payments within twelve months as they search for jobs.

b) Amount of Income

Mortgagees ought to note that the buck does not just stop with whether they are employed or not. The size of their incomes also determines whether they can be refinanced or not. This also affects those whose income has plunged since their initial mortgage. It is hard for such individuals to be given a straightforward refinance since their income is deemed to be unsteady. Those who can afford 75 percent of their payments are eligible for a credit modification. In this regard, it is significant to not that there needs to be not less than ten to twenty percent worth of equity on a borrower's property. In addition, the FICO credit mark of the mortgagee should surpass the 740 mark. You can get more info about it on this webpage.

c) Size of the Equity 

This is another great determinant when it comes to mortgage refinancing. Those who owe creditors more than what their homes are worth are often considered to be underwater. Such a situation makes it hard for them to be refinanced. This highlights the reason why homeowners should continuously try to keep up with repayments on their first mortgage so that they can qualify for subsequent loans.

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