Before deciding on refinancing your home loan, be sure why you need to refinance.  Taking a refinance loan for day-to-day expenses is not recommended.
 

Few reasons why you should go for refinancing

• You may want to undertake some changes for beautifying your home for a raised standard of living.
  
• You may want to renovate so that you can sell it later at a premium.
  
• You may want to consolidate your debts, like credit card dues, education loans, personal loans, and other debts.
  
• You may want to spend for wedding expenses.
  
• You may want to make a large purchase.
  

 

Top Tips

• Do your market research.  Get quotes from different vendors so that you can compare and arrive at the best deal that ideally suits your requirements.  A great way to do market research is going online over the Internet.  Online moneylenders can process your application without any fees, and they can give you fast loan quotes.
  
• Be sure of all the costs that you may have to incur.  Costs may include application fees, processing charges, interest payments, closing costs, penalties, etc.  Making a down payment of at least 3% of the loan amount can help reduce interest payments.
  
• Having a good credit score is important for availing lower interest rates.  With a less than perfect credit rating, you may have to pay more interest and additional fees.  Subprime moneylenders can give loans even if you have a bad credit.
  
• Get all your doubts cleared in writing.  Verbal answers do not serve as evidence if a dispute arises.
  
• You can tap your home equity for refinancing by taking a cash-out refinance loan.  In a cash-out refinance loan, the loan amount is higher than your current mortgage.  Your current mortgage is fully paid and the remaining balance amount is given to you in cash.  Thus, your current mortgage is replaced by the cash-out refinance loan.  The cash-out refinance loan gives you a higher loan amount because of the equity that you have created in your home.  Since, the cash-out refinance allows you to borrow against your home equity, it is almost similar to a home equity loan.  The difference is that with a home equity loan, you take a second mortgage, and you have to pay the interest on the first mortgage as well as the second mortgage, as a home equity loan does not replace your first mortgage.  With cash-out refinancing loan, your first mortgage is fully paid and the balance amount is given to you in cash.  You just have to pay the interest on the cash-out refinance loan.  The benefit of cash-out refinancing is that the interest rate is usually lower than home equity loans, credit card drawings, or personal loans, and has certain tax advantages.  With a long-term loan, your monthly payments are low but you pay more interest and with a short-term loan, your monthly payments are high but you pay less interest.  You should decide which term loan to take depending on your financial position and repayment capacity.
  
• If you have an adjustable rate mortgage on your home, then you can replace it with a fixed rate refinance loan.  This way you can be in charge of the monthly mortgage payments, as they would be predictable.  This is recommended if you plan to stay for ten or twenty years.
  
• If you have an adjustable rate mortgage on your home, then you can replace it with an adjustable rate refinance loan.  This way you will save on interest, as the adjustable rate refinance loan will start with less interest.  This is recommended if you plan to move out in a year or so.