Mortgage refinancing is a convenient tool that allows you to reduce your monthly payment or loan term. Of course, refinancing a loan entails additional costs, so before applying, it is important to calculate all the options. In this article, we will tell you how to refinance a mortgage correctly and what you need to pay attention to.
How to understand that it is time to refinance your mortgage
First of all, you need to keep an eye on the Central Bank’s key rate. If it has decreased, then mortgage rates will also become lower, and refinancing may be profitable. Before you apply for a refinancing of your loan, make sure that:
- there are mortgage programs on the market with more favorable conditions, for example, government support programs, and your case fits the conditions;
- the difference between the old and new rates is more than 1%;
- you have made more than 6 monthly loan payments.
If less than six months have passed since you received your mortgage, you won’t be able to save money, since the rates haven’t gone down yet. And vice versa – there’s no point in refinancing the loan when the term is coming to an end and the principal debt is being repaid.
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How to calculate the benefit
You can refinance your mortgage loan where it was issued (if the bank has an internal refinancing program) or at another bank. To determine the benefit, you need to:
- find out the remaining debt on the loan. You can find it in the bank’s mobile application or check with a specialist by calling the hotline;
- calculate payments taking into account the new conditions. Knowing the loan term and the interest rate, you will be able to determine the overpayment on interest;
- compare the new overpayment amount with the old one. The resulting difference will be your savings;
- take into account additional expenses. These include mortgage insurance, property appraisal, and bank fees.
If after all the calculations it turns out that the overpayment is significantly reduced, then it is still worth refinancing.
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Refinancing stages
If you look into how this procedure works, it turns out that it is very similar to getting a mortgage. Refinancing includes several main stages.
Submitting an application.
You can fill it out and send it directly on the bank’s website. Specify your full name, phone number, type of property and its location and wait for a response. A bank employee will call you shortly and tell you about the next steps. You can also call the hotline yourself and get advice right away.
Submission of documents.
To consider the application, you need to fill out an application form, provide the bank with a passport, documents on the current loan (loan agreement), and a document on income. This may be:
- a copy of the work record book, a copy of the employment agreement, a certificate in the form of a bank or a certificate of income and tax amounts of an individual (for officially employed citizens);
- tax declaration (for individual entrepreneurs);
- income certificate in the form KND 1122036 (for self-employed persons);
- certificate from the pension fund on the status of the account (for pensioners).
If the borrower is married, a notarized consent of the spouse to transfer the apartment as collateral will be required.
The exact list of documents can be found in the bank where you plan to refinance.
Property appraisal
After the application is approved, the apartment must be appraised to determine its market value. The terms of the new mortgage depend on its compliance with the market. Property appraisal is mandatory, since during the time of past payments the market price of the property could change either up or down. The procedure will require an inspection and documents for the apartment: a purchase and sale agreement, an extract from the Unified State Register of Real Estate, a technical passport from the BTI, etc. The expert draws up the appraisal conclusions in the form of a report, which must then be submitted to the bank.
Conclusion of the agreement.
At this stage, the bank reviews the full package of documents for the new mortgage and draws up 2 agreements – for the issuance of a loan and for the mortgage of the apartment. After signing them, you can apply for early repayment of the old debt. In response to the application, you will be provided with a certificate of the balance and the details to which the new bank must transfer the money.
Here you should also take out mandatory apartment insurance against the risk of loss and damage. Life insurance, loss of ability to work and title insurance are at the borrower’s discretion.
Removing an apartment from the mortgage.
This procedure can be carried out either with your participation or at the initiative of the new bank. After the encumbrance is removed from the apartment, the so-called transition period begins. During this time, the basic mortgage rate is used without the benefits provided by the new agreement. To avoid increased expenses during this period, you need to change the mortgagor as soon as possible by contacting the MFC or Rosreestr.
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What are the nuances?
The refinancing procedure may be slightly different if you have a mortgage:
- with DDU. In this case, you receive the right of ownership of the apartment after the completion of construction. If this moment has not yet arrived, the bank receives the right of claim under the DDU as collateral, which after the delivery of the house is re-registered as a property pledge. There will also be two assessments – first, the cost of the right of claim will be assessed, and then the market price of the finished apartment;
- with the participation of the maternity capital. In this case, the procedure was recently simplified, allowing the allocation of children’s shares in the apartment after the full repayment of the refinanced loan. Thus, the legal risk for banks on such mortgages disappeared, and re-registration became available to families with maternity capital.
Can you be denied refinancing?
Yes, the bank can reject an application for loan refinancing:
- if there are any overdue mortgage payments;
- low solvency of the borrower;
- refusal of insurance;
- reduction in the market value of the apartment;
- errors or inaccurate data in documents.
According to the last point, the refusal may be temporary and valid for 2-3 months. During this time, there is a chance to correct the errors and re-apply.
