Mortgage refinancing

Mortgage refinancing is an act of replacing an active mortgage(s) with a new loan. Usually it is done to receive more favourable conditions, such as lower interest rates or longer payment terms. In Latvia, the process of mortgage refinancing happens approximately like this:

1. a real estate guidance agency or you yourself find a bank with better mortgage conditions and apply for a property loan like one would do in any other circumstances
2. when the new bank accepts, your previous bank is notified about the fact, that you would like to refinance the mortgage
3. the new bank prepares a three-party contract, where it indicates that a new loan is to be issued to you for the purpose of closing the old loan
4. this and any other related contracts are signed
5. you or your representative register the new mortgage with a Land Book
6. the new bank transfers the corresponding sum of money to the old bank and thus the old mortgage is repaid
7. the old bank issues an application to the Land Book, in which it requests to close the old mortgage. Thus, your new mortgage becomes the only one tied to the respective property

Advantage evaluation

While mortgage refinancing may be advantageous, it is highly advisable to evaluate all the parameters and expenses beforehand, otherwise it is possible that you will end up paying more than saving. The following expenses should be considered:

• refinancing fees
• mortgage issue fees
• notary fees and Land Book stamp duties
• possible penalty fees for closing a mortgage contract before a specified term (applicable in some banks)
• possible expenses for additional property valuation and/or insurance procedures (may be required by some banks)

It is worth noting that these expenses are not covered by the new mortgage - the loan only covers the sum needed to repay the previous loan. Accordingly, refinancing only makes sense if the total repayable sum of the new loan is lower than the old one plus all the new expenses.

Reasons to refinance

As mentioned previously, mortgage refinancing should be performed when there is a credit institution willing to offer you better conditions than your current one. There are, however, specific circumstances that may prompt you to reevaluate your current loan conditions.

• the current creditor is not willing to renegotiate or update loan terms, or is generally uncooperative in this regard, e.g. is charging a very high fee for loan renegotiations
• the current creditor is willing to renegotiate loan terms, but is only offering unfavourable new conditions
• the creditor abuses its rights to unilaterally (without the consideration of the client) change the conditions of the loan
• you experience sudden financial complications, which may be especially harmful in the long run