home mortgage refinance requirements
“Understanding Home Mortgage Refinancing Requirements”
Home mortgage refinancing requirements are going to vary according to your particular borrowing scenario so lets take a closer look at the starting point for looking into this type of mortgage financing action.
First of all, its going to be important to understand the loan to value that exists for your current mortgage.
If you have a loan to value amount of 80% or less, you have a lot more flexibility with respect to looking at the available programs and products available.
If you require a loan to value amount greater than 80%, then you will require an insured mortgage which can only be provided in a home mortgage refinance scenario up to 85% loan to value.
So its going to be important to understand if 1) you will be able to secure enough funds when restricted to 85% lending, and 2) if the cost of mortgage insurance will be worth the benefit of getting that extra 5% lending amount.
Second, while there tends to not be any restrictions on the reason for home mortgage refinancing, you need to understand the costs that will go into the process.
If you are looking to refinance an existing mortgage with a fixed interest rate, then you will likely incurring a prepayment penalty of the larger of three months interest or interest differential.
Its going to be important to calculate this properly so that the cost is well understood and built into the decision making process when considering different options.
This is also something we can help you with so that the math is done correctly and provides an accurate basis to work from.
Third, mortgage refinancing effectively provides you with a completely new mortgage where you can reconsider the payment structure, prepayment options available, amortization period, and so on.
So its going to be important that whatever type of refinancing action you take will support both your future financial objectives as well as your cash flow.
For instance, many times a mortgage refinance will be done to get a lower interest rate.
In this case, you need to consider whether you want a fixed or variable rate, and will the benefit of a lower rate offset the cost of completing a refinancing action? Further, with a lower rate, you may be able to lower your payment. But keeping your payment the same as it was before will potentially allow you to pay down your mortgage faster, saving interest cost over time.
In other cases, a mortgage refinance is performed to acquire additional capital for some reason such as home renovation, debt consolidation, or estate planning.
With a higher overall mortgage amount outstanding after the refinance, will your new mortgage payments fit into your cash flow, or are you going to have to make some lifestyle changes to more comfortably manage a higher monthly debt servicing requirement? Or do you look at increasing your amortization period to reduce your payment which will see you paying the mortgage over more years and increasing your interest costs over time.
There are also times when a home mortgage refinancing can be forced due to cash flow or credit distress which may require you to consider a private mortgage or a sub prime mortgage product in the near term. The selection of these types of products should depend on how you see your financing profile in the next year or two so that you can select the lowest cost option for moving back to an “A” credit mortgage in the future.
Because there can be a number of different things to consider for any particular situation, I recommend you seek out the assistance of an experience home mortgage broker do that all the different areas of consideration can be properly explored and understood before any mortgage refinancing decision is made.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel