A mortgage loan is a way of raising funds against your property. You keep your property as collateral or security with a financial institution which will lend you money against it. Due to the cut-throat competition amongst various lenders, many of them change their lending policy. It would naturally tempt you to opt for a new lender or to refinance your mortgage.
But as usual all know that some common myths or wrong information arise about the mortgage loan which seems to be true or the borrower assumes that as a right information and follows it. Hence, it is very important to know each and everything about it before applying for it. These myths should be avoided while refinancing your mortgage loan. Here is a list of common myths go through these:
5 Popular Myths About Mortgage Loan:
Myth 1: Mortgage refinancing is free of cost:
Refinancing has fees and closing costs associated with it. It can amount upto 2 to 5 % of the principal amount of the existing mortgage. Many lenders would let you add these costs to your new loan, thus increasing the principal amount and the interest. Generally, such an amount is more than the interest benefit which you may avail by refinancing the mortgage.
Myth 2: The interest rate on the land mortgage loan is the most important thing
Many borrowers of mortgage loan consider only the mortgage loan interest rate as an essential criterion for refinancing. It is a wrong concept, and a myth as the term of the loan is equally crucial. To avoid this, you should either refinance into a mortgage with a lower interest rate and a shorter-term credit or must repay the loan earlier with extra instalments to save the interest amount.
Myth 3: You may not be able to sell your house if you refinance the mortgage.
Refinancing your mortgage does not put a ‘No Sale” condition on your home. Refinancing is concerned with your ability to repay the loan, which can be evident by your credit history and current employment position. The lender is only concerned with the total repayment of the loan money.
Myth 4: Your credit check is not required.
The new lender will require a credit check on you before refinancing a home equity loan in BC. It may seem awkward as you have been paying all your loan dues on time. It is because refinancing is going to be a new loan and the lender wants to be sure of your current state of finances. But if you have an excellent credit profile, then the creditor will give you lower interest rates on the home loan.
Myth 5: You can refinance your mortgage only once
You may refinance your mortgage as many times as you wish. There is no restriction to that. But each refinances would cost you a substantial amount of fees. You may take help of a refinance calculator to check the viability of the refinance before you go for it. If your original mortgage has a prepayment penalty clause, the prepayment penalty amount may also be a considerable sum. In such cases, you have to pay the charges if you attempt to refinance.
All of these are the most common myths about mortgage loan. Apart from these, there are many other myths which might grip you while planning to refinance your mortgage.
Although there are so many myths associated with the mortgage loan there are benefits too. look ahead to know about it.
Advantages of Mortgage Loan:
- A cost-effective way.
- Lesser Interest rates compare to other loans.
- Need no prepayment charges
- Longer tenure facility.
- Tax benefit
- Ownership of the residential property
Let’s address them with a bird’s eye view:
- You cannot opt for refinancing if you have not achieved the “break-even point” of your current loan.
- You need not be an expert in the intricacies of refinancing if you wish to go for it.
- If you have to pay the closing cost, refinancing is not the right choice.
- If you have a fixed interest rate loan, you cannot refinance
- Refinancing takes too long a time and efforts
The list is very long. It would be best if you make your decision as per your needs and the available options.