Do you need money and don't want to take out a loan? Your mortgage and your home may be the solution. Refinancing your mortgage can help you get the capital you're looking for or reduce your loan payment to adjust your finances.
We explain how it works.
What is mortgage refinancing?
Refinancing your mortgage involves changing the terms of your mortgage loan to improve them or to borrow more money if you want to extend your mortgage, for example.
This mortgage refinancing has three different names depending on how you do it:
• Novation . This is the name given to changing the conditions without changing banks. What is done in this case is to negotiate the new conditions with your financial institution. Be careful, one thing is what you propose and another is what the institution later accepts. Just because it is with whom you have the mortgage does not mean that they must agree to lend you more money, lower the interest rate or change the interest rate from variable to fixed, for example.
• Subrogation . This is what is known as changing the mortgage from one financial institution to another. What you do here is take your loan to another institution to improve the conditions, something more common in old mortgages that were signed under worse conditions than those offered by the market at that time. The handicap of subrogation is that you can only modify the interest rate, commissions, link and the term of the loan, but not ask for more money, for example.
• Take out a new mortgage. This is an increasingly common option, even when it comes to processes that could be closed with a subrogation. The reason is that here you can renegotiate everything, including the capital of the mortgage, that is, ask for more money or the capital that you have already repaid.
Depending on what you are looking for when refinancing your mortgage, you will have to look for one path or another.
Refinancing your mortgage involves changing the terms of your mortgage loan to improve them or to borrow more money.
What requirements must be met to refinance a mortgage?
Basically the same as for applying for a mortgage. The financial institution will analyze the same requirements as for a regular mortgage. Ultimately, they will continue to care about the same parameters. Namely, your income, job stability and the home you want to refinance. In addition, they will also ask you to be up to date with your mortgage payments to determine whether or not you are a good payer.
In the end, what the entities are looking for are good clients, with stability and sufficient income to meet the loan. In short, knowing that they will not have problems with you.
The financial institution will analyze the same requirements as for a conventional mortgage.
Why refinance your mortgage?
There may be many reasons for requesting a refinancing of your mortgage, but you surely have your own. The most common is to improve the conditions of the loan and save on the mortgage . However, you can also do it to change the mortgage from a variable rate to a fixed rate or to add another holder to the loan.
You may also want to pay less on your mortgage. If this is the case, you may want to refinance your loan to extend the repayment period and thus reduce your monthly payment.
Finally, you may simply want to finance other projects, such as renovating your home or consolidating debts to include them with your mortgage. There are, of course, personal loans for renovating your home or buying a car, but they are usually more expensive than a mortgage.
However, in this specific case, you should bear in mind that most entities will require that you have already paid a good part of the mortgage. That is, you can re-mortgage the house up to a maximum of 80% of its purchase value as a general rule, not beyond that.
When does it pay to refinance your mortgage?
Refinancing your mortgage is worth it as long as you gain from the change and the costs of the operation do not eat up your savings. And none of the three operations you have seen are free.
Both novation and subrogation, and of course signing a new mortgage, have a series of costs and fees that you will have to pay. For example, if you want to ask for more money for the mortgage, you will always have to face the appraisal costs, just as if you signed a new loan. It is important that you take into account the novation costs in order to make the best decision.
The key is that these expenses do not exceed the benefit or savings you are seeking to achieve. The exception would be cases in which you are looking to extend the mortgage to pay less instalments and reduce monthly expenses.
