When purchasing a property with a mortgage, the owner agrees to pay the bank the mortgage loan, usually for 20 or 30 years. However, economic conditions can change over the course of two or three decades, and the opportunity or need to refinance a mortgage may arise.
Refinancing a mortgage involves making changes agreed upon at the time of acquiring the loan from the bank. This may be to pay off the loan early, to save on rising interest rates, or because the economic situation has worsened and a longer period of time is needed to be able to pay off the loan on the agreed date.
Scoring or credit score
When considering refinancing a mortgage loan, it is important to check the credit score that different banks and financial institutions manage for their clients, which basically consists of a number that defines the probability of payment to the financial institutions that lend the money.
The metric for calculating this score depends on each financial institution. To determine the score of a natural person or legal entity, the bank or financial institution will take into consideration the accounts owed, payment history, duration of the credit history, income and profession. If payments have been made on time and there are not too many debts or they do not represent a very high percentage of the usual income, it will be more likely to obtain a good credit score.
Minimum payment time and the best options for mortgage refinancing
Before proceeding to negotiate a refinancing, the market and the current mortgage interest rate must be carefully analyzed to compare whether opting for a refinancing brings with it more benefits than not doing so.
On the other hand, to refinance a mortgage loan it is almost essential to make at least a minimum of 6 to 12 months of mortgage payments on time and that none of these payments have been late.
Types of mortgage refinancing:
- Mortgage novation: Refinancing is done with the bank that obtained the loan. For this type of operation, a mortgage renewal fee will have to be paid, and it is the fastest way to carry out refinancing. Mortgage novation is specifically a public document that has been previously signed by both parties. With this option, the repayment period, the ownership of the mortgage and the interest rate can be modified. However, the disadvantage of opting for mortgage novation is that other better offers may be missed.
- Mortgage subrogation: Unlike the previous option, this operation will be carried out with a bank different from the one with which the mortgage was initially agreed upon. It consists of transferring the mortgage to another bank, allowing the transfer of all the conditions in force in the contract with the previous bank, except for the modification of the amount of the loan or the matters relating to the ownership of the mortgage contract. The main disadvantages of mortgage subrogation are the limits mentioned above regarding the loan capital and the holders of the loan. In addition, when transferring a loan to another bank, it is common to have to pay a commission of between 0% and 2% of the outstanding amount, together with the payment of the cost of the appraisal of the property.
- Early cancellation: It is possible to cancel an existing mortgage by taking out a new one. The great advantage is that a new contract can be signed with conditions that are different and even better than those of the old mortgage. However, the great disadvantage is the costs of carrying out the early cancellation added to those of the new mortgage loan.
Before you decide to refinance your mortgage, consult the opinion of professional experts in the real estate market to obtain a complete and detailed analysis to determine whether refinancing your mortgage loan is a good option for you.
