Have the conditions changed and you want to refinance a mortgage loan? Is it possible? This article will help you find the answers to all your questions about financial products. Remember that when it comes to loans, there is never too much information.
Yes, of course you can refinance a mortgage loan. Either because the situation in the country has changed and bank rates are different, or your personal situation is different and you can now afford to pay an amount that is different from the previous one. For either option, you should know how to do it and what to consider.
The purpose of refinancing a mortgage loan is to modify the structure and payment terms to adapt them to your needs. In other words, you apply for a new loan to pay off another one and continue making payments, with a different contract.
Why refinance a mortgage loan?
Typically, refinancing involves reducing your monthly payment and lowering your interest rate, allowing you to pay off your loan over a longer period of time. The goal is to adapt your loan repayment to your actual income so that it is not difficult to pay off, but there are other reasons why you might refinance a mortgage loan:
- Adjust the mortgage term, either to increase or reduce it;
- Reduce the interest rate;
- Changing from a variable interest rate to a fixed rate;
- Receive money similar to the amount already paid;
- Reduce your monthly payment.
This will depend on changes at country level, for example a drop in rates, or your personal situation: you have got a better job or your situation is different from when you took out the loan and it is proving difficult for you to pay off the debt.
When is it time to refinance a mortgage loan?
Some of the things you should consider are:
Projection of personal income and costs
If your permanent income has increased or decreased, consider refinancing. Remember that the dividend payment should be close to 25% of your monthly income.
Compare Equivalent Annual Cost (EAC) and select the lowest
CAE is the indicator that, expressed as a percentage, represents the cost of a loan over a period of time. This value is expressed as a percentage and was created to convert financial products into easy-to-compare products for users.
Don't forget about operating costs
If you refinance with the same bank, you will only pay for the contract update and notary fees. If you are refinancing with a new bank, you will also need to consider the registration fee at the Property Registry Office, the appraisal fee, and the Stamp Duty and Registration Fee.
What documents do you need to refinance a mortgage loan?
Mortgage refinancing can be done at the same institution where you applied for your first loan or at any other institution. As for the documents, keep in mind that you are establishing a new loan with different conditions. In general, this will take you through the same approval process as the previous mortgage, however, it depends on the institution granting it. You will probably need to submit:
- Previous credit payment history.
- Accreditation of your income and employment history.
- Home appraisal to confirm its current market value.
There are times when some entities offer their customers a series of additional advantages when refinancing a mortgage loan and allow them to change the initial conditions, as well as lower interest rates or authorize the cancellation of the debt with an exceptional payment.
Therefore, analyze the situation carefully and do not rush. You can refinance your mortgage, but always compare the options. In this case, you will have to go directly to the entities to see what they offer, as it is not a normal loan, but it is good to have a general idea of what the rates and CAE are.