Mortgage refinancing: what you need to know
Mortgage refinancing is a loan you can take out for various projects such as renovating your home, paying your children’s school fees, or purchasing a car or a second home. Such a loan is based on the equity in your home. This corresponds to the difference between the current value of your house and the mortgage you have left to settle.
This solution which consists in resorting to a new mortgage loan ultimately allows you to have at your disposal an important source of credit, insofar as it gives you the possibility of borrowing up to 80% of the value of your house, which is very interesting when you want to make a large purchase. As a homeowner, there are several options for mortgage refinancing. You can opt for the mortgage margin.
In this case, your lender can give you credit with an amount that varies from 65 to 80% of the equity in your home. It is obtained by making the difference between the value of your property and the balance of your mortgage.
If you are looking for an advantageous way to finance a project without having to pay penalties or make a change to your mortgage, choose this solution. Be aware, however, that the interest rate applicable here is variable and may subsequently go up or down. It is also possible to request a new loan on the total amount of the prepayments of your mortgage credit. The amounts made available to you as part of this type of refinancing will logically add to your current mortgage loan.
Here is an example to help you understand this formula.
Your mortgage balance is 150,000 USD. Since taking out your mortgage 10 years ago, your prepayments amount to 60,000 USD. If you negotiate with your bank or lending institution a refinancing of up to 80% of your prepayments, you will have access to a loan of 48,000 USD by multiplying 60,000 USD by 80%.
The new amount of your mortgage debt will therefore be 198,000 USD (150,000 USD + 48,000 USD).
You can also choose a second mortgage loan on your property. This option has the advantage of avoiding the payment of prepayment penalties. However, the lender to whom you will apply will apply a higher interest rate in order to protect themselves in the event of difficulty of payment.
Keep in mind that the choice of mortgage solution is very crucial. This depends on the various administrative costs, accessibility to the funds granted or the type of interest rate: fixed, variable or mixed.
It is obvious that the aforementioned elements have an impact on the overall cost of the operation, regardless of the method of mortgage refinancing calculation chosen.
Know the main elements of eligibility for mortgage refinancing
In order for your mortgage refinancing request to be approved by the lender, the lender will verify a certain number of elements. These include your household debts, the amount of credit you want to get, your household income and of course the value of your home. Make sure that each of them fulfills the conditions generally set by the banks before submitting your file.
The different elements to take into account when calculating the amount of a mortgage refinancing. Like any loan, refinancing a mortgage has a cost that you have to bear. Be aware as well as part of a mortgage refinance calculation, several elements are taken into consideration to determine the total amount to be repaid.
One can cite among others the duration of the loan which is generally 20 years. You must also add the administration fees, notarial fees and much more. You will find easy to use tools such as calculators to make simulations in order to get started with full knowledge of the facts.