Refinancing Your Mortgage: Do You Need It?

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Home refinancing is a method borrowers can use to pay off an existing loan with a lender using a different financing company. Sometimes, refinancing allows borrowers to spend the remainder of their loan proceeds on other expenses, whether purchasing home furniture or funding non-housing-related projects.

While refinancing is a viable option to ease financial burdens, it is not for everyone. Learn what mortgage refinancing is, how it works, and if you need it.

What is Mortgage Refinancing?

Mortgage refinancing is a financial option that utilizes a new loan to settle an existing one. Lenders typically refinance their mortgage to get lower interest rates, reduce monthly payments, or access home equity. In addition, it provides lenders with an easier way for borrowers to change loan terms or switch to another mortgage type, providing greater financial flexibility.

How Does Mortgage Refinancing Work?

As mentioned, reducing debt is more manageable with mortgage refinancing. That said, you need to consider several steps and factors to determine if you want to pursue it. If you want to refinance your mortgage, here are some things you need to know.


Mortgage refinancing requirements may vary depending on the provider you choose. However, these are the standard requirements most lenders will look for:

  • Good credit score – A credit score ranging from 500 to 620 qualifies you for most mortgage refinancing loans.
  • Considerable home equity – Ideally, you should have a 20% stake equity or cash value in your home to be eligible for refinancing. Fortunately, even if you fall below that threshold, you can still apply, provided you have a good credit score.
  • Debt-to-income ratio (DTI) – The DTI measures how much of your earnings go toward debt repayments. It would help if you aimed for a DTI rating of 43% or lower if you’re looking to refinance. Anything higher than that will make it more challenging to secure a home loan.
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Pros and cons

Like other loans, mortgage refinancing has its fair share of benefits and drawbacks. 

The most significant advantage of mortgage refinancing is it enables you to find loans with lower interest rates. The decreased rates reduce your monthly mortgage and allow you to save more. Plus, it gives you options like cash-outs or shorter loan periods, helping you manage other financial aspects.

Unfortunately, refinancing has some drawbacks, including qualification requirements, closing costs, and unpredictable long-term fees. Mortgage refinancing may not be for you if you are not in good financial standing or lack the credentials.

Refinancing fees

Remember that closing one loan and getting a new one will incur additional costs. A housing or mortgage loan will require you to pay the following fees:

  • Administrative fees
  • Insurance premiums
  • Pre-termination fees
  • Processing fees
  • Registration fees
  • Incidental costs

Home or property appraisal

A home appraisal is necessary to determine your property’s current market value. By knowing how much your house is worth, you and the lender can assess the risks of refinancing your mortgage while ensuring the property value is enough to cover relevant costs. 

Sangla OR/CR

In the Philippines, OR/CR or the official receipt and certificate of registration documents prove vehicle ownership. Some lenders accept OR/CR documents as collateral in a refinancing arrangement. This arrangement means you can still use your vehicle that’s on a car mortgage

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5 Reasons You Should Consider Mortgage Refinancing

If you’re a homeowner, several reasons can compel you to consider mortgage refinancing. Here are some situations when refinancing your mortgage is the best choice.

1. Lower rates and mortgage term

Again, mortgage refinancing lets you lower your loan interest rate and shorten its term. Lower rates can translate to considerable savings, while shorter loan terms allow you to repay debt and build home equity faster. 

2. Convertible ARM to a fixed-rate mortgage and vice versa

Adjustable-rate mortgages (ARMs) entice borrowers due to lower initial interest rates, helping you save money in the short term. Since ARMs have fluctuating interest fees, budgeting may be more difficult. On the other hand, a fixed-rate mortgage gives you more stability since you pay the same monthly amount consistently.

Both mortgage types can be beneficial depending on your situation. Regardless of your choice, switching from one to the other via mortgage refinancing is possible.

3. Use of home equity to finance an emergency or significant purchase

Mortgage refinancing is an excellent option if you lack the funds to spend on unexpected expenses or a substantial house repair project. When you refinance your property, you can use its cash value for whatever purpose you deem fit while maintaining your bank accounts.

4. Debt consolidation 

If you have multiple loans, mortgage refinancing allows you to combine your debts into one account. Making one versus several payments month after month makes the process more manageable.

You may even enjoy tax reductions from a consolidated loan, providing additional savings and helping offset the costs of debt consolidation

5. Improve credit score

Creditworthiness is crucial in getting a loan or other financial products, like credit cards or low-interest insurance. With mortgage refinancing, it’s easier to build a good credit score—given how it enables you to afford monthly payments, settle debt, and lower your DTI. 

Making the Most Out of Mortgage Refinancing

Mortgage refinancing presents borrowers with an opportunity to improve their financial standing. That said, you must consider a few factors before doing it. 
If you need an online loan in the Philippines, choose a company you can trust, like Asialink Finance Corporation. As the Philippines’ premier online financing company, Asialink Finance is one of the leaders in providing quality financing and loan products that empower Filipinos to pursue their dreams. Apply for a loan today and achieve your goals cost-effectively!

Gab Doromal