How to refinance a mortgage – choose a bank for on-lendingOn April 20, 2019 by Tanya Houle
Even if at the time of receiving the mortgage, the borrower was satisfied with the rate, after some time, at first, the favorable interest rate became disproportionately high compared to the new mortgage programs that had appeared. Due to the fact that a large amount of money was borrowed from a bank, even a modest difference in percentages turns into a rather substantial overpayment over several years. You can avoid it if you refinance a mortgage in your bank or from a third-party lender. However, this should be done only after a thorough assessment of the benefits and counting all the new costs arising from the reissue of debt.
Pros and cons of mortgage loans refinancing
The refinancing agreement allows you to get a new target loan to pay off the existing one, but on more favorable terms and without an initial installment. Along with ordinary non-earmarked loans, you can refinance mortgages at a lower percentage, reducing the percentage overpayment and reducing the regular payment.
Before you decide for yourself whether to refinance a mortgage, you must determine the final benefit of this step. Just a few years ago, home purchase funds were issued at a much higher rate on mortgages, which is why the topic of on-lending under old contracts is so relevant. However, there is a significant “but” – as a rule, the payment was calculated using the annuity scheme, with priority interest paid in the first part of the loan period, so refinancing an old mortgage, when the balance of debt is small, results in questionable savings on interest. The decision should be made taking into account a complete analysis of all the advantages and disadvantages
Reasons for refinancing:
- Reduced payment. Loaning involves the revision of any of the parameters of the loan, including the term and interest. The combination of reduced interest and a longer repayment period provides relief for the payer. Working with a mortgage calculator will allow you to estimate how much less the payment will be and what the final cost of the mortgage will be.
- Reducing overpayment. If you leave unchanged the term of the contract, a loan at a lower interest will make it possible to seriously save on the overpayment to the bank. This will reduce the amount of regular payments.
- Exemption of property rights from collateral. Long-term lending with registration of the acquired property as a pledge does not provide an opportunity to sell, exchange, re-register housing for another, no matter how profitable and desirable this step is. Taking advantage of refinancing without collateral, the payer liquidates mortgage debts and receives the full right to dispose of the property at its discretion.
- Transition from a currency mortgage to a ruble loan. Fluctuations in the exchange rate, and sometimes serious jumps, worry borrowers, because wages are often paid in rubles, and the amount must be exchanged at an increased rate to pay off the monthly debt. In spite of the fact that the overwhelming majority of programs are designed for the domestic currency, there are a lot of valid loans issued in dollars or euros. Refinancing will allow moving to more stable payments that are not tied to exchange rate jumps.
- Transition to a more comfortable debt service.
Possible negative consequences and disadvantages of the program should be analyzed:
- Special emphasis should be placed on the benefits of refinancing at the beginning or the first half of the contract period, if annuity payment is applied. If a differentiated settlement system is used, the benefit persists throughout the entire lending process. The problem is that most mortgage schemes provide for an annuity payment, which means that interest is paid in the first place, distributed over the entire financing period in such a way that accrued interest is paid in the first half of the term. As a result, intending to refinance in the second half of the term, the borrower discovers that the interest overpayment will be higher, since under the current agreement most of the accrued interest has already been paid.
- The cost of renewal. Additional associated costs can reach significant amounts. A new contract means that a new assessment and renewal of the insurance agreement, plus additional payments for the preparation of certificates by banks, is necessary. It is necessary to calculate how much refinancing costs and whether the savings in money terms remain after the official change of creditor.
- The complexity of the agreement. In fact, targeted mortgage refinancing means the same actions on the part of the borrower related to the approval of the application, the preparation of new documents, the assessment of the credit history and solvency of the person. It’s far from the fact that over the years of mortgage payments the financial situation has been consolidated, and the number of dependents in the family has remained unchanged.
Most mortgage is taken in the calculation for the completion of the family, the birth of children, which is reflected in the result on per capita income. The intention to reissue a loan does not mean that the new lender will be ready to provide favorable conditions for refinancing.
Where it is profitable to refinance the mortgage
Evaluating whether the offer of a particular bank is profitable, you should first examine all other programs. Sometimes a bank provides a profitable refinancing of a consumer loan at a minimum interest rate with an increase in the amount of the credit line, which allows, without prejudice and additional efforts, to close the mortgage debt with the amount received. Before the final decision should consider the option of lending to the best current refinancing programs.
The program from Russian Bank offers to consolidate several existing loans under the following conditions:
- Rate of 9.5% (if several other loans are combined with the mortgage, the rate is at least 10%).
- Credit limit – up to 7 million rubles (at least 1 million rubles).
- Repayment over 30 years.
To conclude an agreement with the bank, it is necessary to comply with the parameters: be older than 21 years, work with the last employer for six months. At the time of the last installment to be younger than 75 years.
When refinancing with Private Bank, it is possible to receive up to 30 million rubles to close a debt on a valid mortgage (this limit is set for the capital region).
Standard Private Bank Terms:
- The rate of 9.7-11%.
- The maximum amount is limited to 80% of the estimated value of the collateral.
- The term is 20-30 years (for the payroll clients there is a longer repayment period).
If the borrower decided to use the program with the presentation of a minimum of documents, the maximum limit is limited to half the estimated value of the object.
Why not all banks refinance mortgages
Recently, taking into account the growth of bad loans and the general debt load of the population, banks are more carefully considering candidates for mortgages. Under earlier treaties, less stringent restrictions applied.
Faced with the problem of the danger of non-return, each applicant is carefully checked.
A lender who has high customer requirements is unlikely to take up refinancing the debt if in the past there were delays or earnings decreased.
The new program entails re-registration of the collateral object, which after long years of payments could lose its technical characteristics and lose liquidity.
Necessary documents for refinancing
Each bank has its own requirements, based on the established internal regulations and organization policies. Nevertheless, all refinancing programs involve the provision of basic documents: applications for a reduction in interest and a Russian passport.
When revising the conditions of the mortgage will definitely need the following paper:
- Documentation on the collateral object (he is the acquired property).
- Paper confirming the transaction (contract of sale).
- Extracts from the current creditor on the balance of the debt, other papers, including the loan agreement, details for crediting, confirmation of the absence of overdue debt.
- Certificates from the employer or documents confirming a stable regular income (certificate 2-NDFL), including the earnings of the co-borrower.
It must be remembered that even having a good income and fully complying with the parameters of a new lender, you can get a rejection if you find serious delays under the current contract.
How much is it
Before refinancing, the borrower should carefully calculate the benefits and additional costs. Calculate savings on interest can be using a mortgage calculator, and the costs will have to determine on their own, based on the specific conditions of the bank.
Additional cost items for mortgage re-registration are presented:
- Payment certificates from your bank.
- Services appraiser.
- The cost of insurance.
- Notary fees if the consent of the spouse is required.
- State duty in Rosreestre when transferring a mortgage to another bank.
How many times can you refinance a mortgage
It is necessary to take into account that only the primary contract can be refinanced. Banking structures do not imply an endless revision of credit conditions. Therefore, the choice of programs should be approached as carefully and seriously as possible.