Are you planning to pay off your existing loan by taking a new loan? If yes, then here’s a list of 5 mistakes that you should avoid during the process.
Refinancing is done to pay off an existing loan by taking a new loan and using the same property as mortgage. Usually, homeowners opt for refinancing to take advantage of dropped interest rates and reduce their payments. It also gives the benefit of moving from an adjustable interest rate to a fixed rate loan. Additionally, if you have a balloon loan where you have been paying interest charges for a long period of time, refinancing will help you in paying off the principal amount at the end of the loan term. Mortgage refinancing is a good option to save yourself from bankruptcy.
Remember to avoid the following mistakes:
Before you can apply for a new loan, you must calculate your credit score to learn how much interest rate you will receive.
You should also find out the worth of your home. For example, if you own a House in Bangalore and it was worth Rs. 10 lakhs seven years ago, it is very likely that the rates have changed depending on the real estate trend of the IT city. If your equity is low, you will receive an expensive refinance offer.
The main objective of refinancing is to lock in low interest rates. Recently, RBI slashed repo rates which lowered interest rates for home loans. This is good news and you would probably want to wait for longer to see if the rates dropped further. But, waiting will not be helpful if you are trying to pay off your existing loan. If the interest rates drop, you can opt for refinancing again but before that you should take advantage of the current low rates.
While interest rates are important when you are opting for refinancing, it is important that you focus on other factors such as credit points, fees, and loan term. You should always look at the bigger picture if you want to avoid refinancing mistakes.
Don’t always assume that the bank to which you owe the current loan, will offer you a special rate for another existing loan. Always compare the interest rates offered by various other banks. Check all the rates on the same day as they vary from day to day. Also, you should enquire about the loan processing fees in different banks.
This is the greatest mistake of all and it could cost you heavily. No matter how long your loan document is, always read it carefully. If you can’t understand the legal jargons, take help from a legal expert.
When you are applying for mortgage refinancing, remember to avoid these mistakes.Loading Comments...