Seeds of refinancing are planted when an individual or corporation finds a financial institution that is willing to rewrite the terms of their original loan. Lenders revisit everything from payments to interest rates during the application process, which could be beneficial to the borrower. While refinancing comes with many perks, including cash payments that may be used to pay off other debts, there are certain necessary steps to take in your quest to revamp the terms of your second mortgage.
Step 1: Analyze your finances and determine if refinancing is the right move
Some borrowers refinance for the sole purpose of paying off other debts. You should, however, take a closer look at your financial situation before deeming a loan rewrite as your savior. Refinancing comes with certain penalties and fees that the lender may not be willing to waive. It is, therefore, essential that you examine your financial standing now and what your budget will look like after the terms of your new loan have been reconstructed.
Step 2: Pull your credit report
Lenders take into account your income and creditworthiness before approving or denying your request for a refinance. Financial institutions also base how high or low your interest rate will be on what is in your credit report. It is important to make sure that your credit scores are at their greatest potential before attempting to refinance.
Step 3: Compare and contrast at least three lenders before deciding on an institution
You should begin with the bank that currently holds your second mortgage, but you should not go with the financial institution just because they presently support your loan. In some cases, lenders vying for your business are more willing to waive certain penalties and fees than your mortgage company that currently holds your loan. Going with someone else may be the best way to get a better deal.
Step 4: Select a financial institution
Interest rates are important, but they should not be the deciding factor that determines which company you select. Closing costs, prepayment penalties, and other fees should also be taken into account before you sign on the dotted line.
Step 5: Make sure that you understand all of the terms before agreeing to them
It is important to read through the entire contract before agreeing to its terms. A lender has the legal authority to hold you responsible for every aspect of a written commitment that you sign regardless of whether or not you are aware of stipulations. Make sure that you ask questions and have complete knowledge of your rights and responsibilities before agreeing to the new terms.
Step 6: Wait for the lender to communicate
Your lender will give you clear instruction as to how long it will take you to repay your refinanced loan. The bank will also send a notice when everything is finalized. You should not negate the terms of your original loan before learning that all measures of your refinancing efforts are processed.