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3 Steps To Take Before Refinancing Your Home Loan

By Jamie Richardson | October 2, 2017

If you’re like most people, you probably hate the work involved in organizing a home loan, then once you have one don’t want to think about it again for a long time. However, if you want to save some money over the coming years, it is important to keep in mind that refinancing your loan can be worth the time and effort involved.

Getting a new loan can mean you enjoy a reduced interest rate, lowered account-keeping fees, and even get access to extra funds to draw out if the value of your property has risen in recent times. Before you start applying for a new loan though, it is important to take a few key steps. Read on for three of the main things you need to do today before you refinance.

Check Your Credit Score
First up, it’s always a good idea to check your credit rating before you apply for refinancing. This can be done at zero cost online, or you can pay a firm that specializes in the area to provide you with a very comprehensive report.

While you might think there isn’t much reason to look at your credit status because lenders will do this themselves, if you know your current position you can work to improve it. Sometimes it may just not be worth putting in a loan application at all if you have a low credit score. As well, a less-than-ideal rating can not only disqualify you from loans, but also mean you get lumped with a really high interest rate if a lender will work with you.

Note that sometimes people think they should have a top credit rating, but when they get their report they find out that some kind of financial error or misunderstanding has actually led to their score being negatively affected. For example, someone else’s bill may have been put under your name, or a simple clerical mistake could have occurred. Furthermore, it’s easy enough to mislay or forget about invoices, so you might also discover that an overdue payment of your own is affecting your score. If you check your rating sooner rather than later though, you can do something about any of these issues.

If you find your credit rating isn’t looking great, take time before you apply for refinancing to pay off as many debts as you can. This will help more lenders to approve your loan, and you will get a better deal too, because your debt ratio has improved.

Assemble All the Necessary Paperwork
Next, to help making the refinancing process easier and quicker, assemble all the necessary paperwork a lender will ask for before you start the application process. It is a good idea to research the various lenders on your shortlist, to find out what kind of information they will be after. For example, what is required for a Harp refinance deal may be quite different to what your local bank requests.

In most cases though, you will be asked to show lenders your last few tax returns, so that they can see proof of your incomes, expenses, assets, liabilities, and likely borrowing capacity. You will typically have to submit some sort of proof of your current employment too, such as 30 days of pay slips, or a few months’ worth of trading history if you are self-employed and running a business. In this case, you will generally have to supply things such as company tax returns, profit and loss statements, and balance sheets.

When it comes to paperwork, it helps to have all the documentation relating to your various assets and liabilities on hand. For instance, put together a folder that contains information on your current mortgage, car loan, student loan, credit card statements, and business loans. In addition, collate proof of ownership of assets like mutual funds and savings accounts, stocks, bonds, art, other real estate, businesses, and anything else with significant worth.

Determine the Likely Costs Involved in Exiting Your Current Loan
Lastly, don’t forget many lenders have stipulations in their loan contracts that cover what happens if you want to pay out a loan early. Before you go and source a new deal, make sure you carefully read over your current loan document for information on any prepayment penalties which could apply for early termination.

Different lenders can have very different terms in this regard, so you might find there are no, or minimal, charges to worry about, and that refinancing will result in you paying significantly less each month. If you discover the penalties will be very high, crunch the numbers to see if changing loans will actually be worth it. Alternatively, talk to your current lender about what they can offer you if you stay with them – by doing so, they might be happy to waive some or all the fees.

Jamie is a 5-year freelance writer who enjoys real estate. He is currently a Realty Biz News Contributor.
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