Refinancing Your Home Loan

By: EconomyWatch Content   Date: 27 November 2009

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Refinancing your home loan might be advisable if you are struggling with high interest rates on your current home loan. A refinance home loan may help you obtain lower rates and more flexible payment terms, thus reducing the risk of defaults.

 

When Should You Consider Refinancing Your Home Loan?

Refinancing a home loan is an ideal option when you are seeking to.

·        Lower monthly payments: Besides obtaining a lower interest rate, you can consider refinancing the remaining principal of a home loan for the original duration of the loan. For instance, assume that you borrowed $100,000 on a 20 year term and you are currently ten years down the track with only $40,000 left on the loan. Under a refinance home loan, you can alter your monthly payments by taking a 20 year term loan on the remaining $40,000.

·        Consolidate debts: Home loan refinancing enables the borrower to cover other debt products, such as credit cards and personal loans as well. For instance, you owe $90,000 on your home loan and $10,000 on other debt. By taking a mortgage refinance of $100,000 you can lock-in a lower interest rate.

·        Obtain extra cash: Home loan refinancing enables the borrower to use the equity accumulated on a home loan for funding home improvements, purchasing a new car or undertaking any personal investment.

Finally, you may consider refinancing your home loan to gain more financial security. Home loan refinancing is not only a good option when the market interest rate declines, but is also a wise alternative when it is expected to increase. This is particularly profitable in case of an Adjustable Rate Mortgage (ARM). A refinance home loan helps to lock-in a fixed interest rate, which will help you gain monetary safety in volatile times. 

Refinancing Your Home Loan: Application Procedure

Applying for home loan refinancing is similar to applying for a standard property loan. It involves filing a basic loan application form and furnishing the following evidentiary documentation:

·        Proof of income: Generally, lenders ask for salary slips of the past two or three months.

·        Copy of home insurance: This helps the lenders to ascertain that the home is covered sufficiently.

·        Documents verifying asset possession: This includes copies of savings and checking account statements, and investment records of stocks / mutual funds.

In addition, some lenders may ask for copies of tax returns, particularly when a borrower is self-employed.


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