In the modern world, it's typical practice to get a bank loan to buy a home. Or, specifically known as a mortgage. Once you have a mortgage, you have the option of refinancing, and with it, you technically pay the old loan and get a new one. Nowadays, refinancing has blossomed into different varieties and categories. While refinancing your mortgage can be beneficial, it often confused people. To help with that, this article is going to cover a few crucial refinancing tips that every homeowner should know.
Tip #1 – Know Why You Are Refinancing
There are plenty of reasons why you could be refinancing. A few of the common ones usually include:
* Lower Monthly Payments
* Better Interest Rates
* Paying The Loan Faster
* Turning Your Equity Into Cash
You'd want to know why you are refinancing because there are plenty of lenders out there that cater to a specific need. For example, if you want to refinance because you want to turn your equity into cash, you'd likely get a better deal if you work with a lender specializing in such.
Tip #2 – Remove Errors From Your Credit Report
If you want to get a better refinancing deal, then this tip is perhaps the most important to remember. Not a lot of people know that credit reports are closely linked to mortgage rates. In fact, it's closely related to any kind of loan. The reason for this is its standard practice for lenders to check your credit report before giving you a deal. A higher credit score rating means that you are less of a risk. As a result, the lenders will offer you better interest rates. However, credit reports are not perfect.
It's not uncommon to find errors in a credit report, which will bring down the credit rating. Some of the most common errors include:
* Incorrect Personal Information
* Bad Debts
* Duplicate Negative Marks
* “Closed By Lender” Errors
Obtaining your credit report is not hard either. For a few bucks, you get to see your credit report. Then, you can check for errors and have them fixed. The clearing of the error should give your credit score a bump, which would then pave the way to better refinancing deals.
Tip #3 – Build Your Credit Score
The last tip was all about fixing the possible mistakes in your credit score to help bump it up. This tip is all about actively improving your credit score. Keep in mind that the subject of improving your credit score is deep and wide. Nevertheless, the point mentioned below should help you get started.
* Pay Everything On Time – pay your credit card bills and other bills every time and on time. What you are doing here is building a history that you are a responsible person who can manage your finances well. By doing so, the lenders will evaluate you as a low-risk candidate.
* Manage Your Credit Utilization – upon receiving your credit card, you will have a maximum amount of money you can borrow. As a general rule, you should use not more than 30% of that maximum amount, also known as 30% credit utilization. Borrowing more than that will not look good for you in the eyes of the lender, and you increase your chance of missing a payment.
* Don't Trash Your Credit Cards – since the last advice is not to use more than 30% of your credit maximum, most people think they'd just cut off credit cards completely to save themselves from the troubles from credit scores. This is a big mistake. If you don't use your credit, the lenders won't know how reliable you are in terms of paying back. Hence, you still need to use your credit to build up your credit history.
Tip #4 – Lock Your Interest Rate
If you can, you should lock your interest rate, making your monthly payments predictable. Keep in mind that you are mortgaging your house. If you play around with variable interest rates, you may run into the risk of not being able to pay your monthly payments. The last thing you want is getting kicked out of your home because of a seemingly small difference.
Refinancing your mortgage can be both a bad and a good idea. It's a double-edged sword that can cut you if you are not careful with it. On the other hand, proper utilization of it can help improve your finances. Following the tips above should point you in the right direction of proper utilization of mortgage refinancing.
