You have deicided that refinancing is the right way for you to go. Also, you have enquired with a string of lenders and already know who has the best deal to offer you. However, do you know if you can qualify for refinancing?

The first thing that you need to do is to examine your current mortgage terms. Most of the time, fixed rate mortgages do not allow refinancing, and therefore will impose a penalty charge on you if you decide on a home mortgage refinance. This is because refinancing basically means paying up your current mortgage in full before the loan is due and obtaining a new loan from another lender.

If your reason for refinancing is to increase the home equity by opting for a higher monthly repayment and a shorter loan term your total monthly liabilities, including your new monthly repayment amount should not exceed 42% of your income.

Apart from that, the new lender must also determine whether you are refinancing because you have been having problems paying for your current loan. Therefore, ideally there should not be any late loan repayments over the past 12 months.

The lender would also want to find out if you have been working in the same industry for the past 2 years. Potential borrowers who have been job-hopping do not make ideal customers for lenders, who seek stable income earners when evaluating borrowers for refinancing.

Finally, you should also be able to show asset reserves that can last you for at least two months worth of repayment value. This is to assure the lender that you will be able to sustain your loan in the event that you are out of job temporarily.

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