Whether you need cash to renovate your house, money for college, or simply want to liquidate some of the equity you’ve built up in your home, refinancing can be a great option. If you’re interested in mortgage refinancing, keep reading to learn how and where to find some great deals.
Have a Full Appraisal Done
Before you apply for a second mortgage or refinancing, make sure you know exactly how much your house is worth. Get a full appraisal done that includes an assessment of not only the property, but also the area and amenities.
Once you know how much your house is worth, you can confidently present that information to the bank or lending institution.
Take Care of the First Mortgage
If you’re refinancing a full mortgage and intend to pay off your first mortgage with the second one, make sure you’ve read and understand your mortgage contract. Some lenders insert pre-payment penalty clauses that prevent homeowners from pre-paying their mortgage early or within the first 1 to 5 years without incurring a penalty.
To avoid getting stuck with a hefty penalty fee, make sure you understand these terms before you start the refinancing process.
Apply For a Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) is one of the easiest ways to obtain secondary financing on the equity built up in your home. Because a HELOC requires less documentation than a mortgage, the application process is much simpler.
The other advantage of the Home Equity Line of Credit as a refinancing option is that you only pay interest on what you actually use. Essentially, a line of credit offers you a credit limit with a low interest rate and you only pay interest on the amount that you actually use.
Get the Value After Renovations
If you’re refinancing for renovations and need more cash now, apply for a loan based on the value of the home after the renovations are completed.
Typically, a loan based on a renovation or improvement project will require you to submit documentation that includes full plans, architectural drawings, contractors’ estimates, project budget and an appraiser’s assessment of the home’s anticipated value after the improvements are complete.
There are ways to save on refinancing, but the best is your own track record. Because you’ve already either paid off or built up significant equity in a home, lenders recognize that you’re a low-risk borrower and a highly desirable customer. Make sure they treat you that way.
