Factors Affecting Mortgage Refinance Approval In Pakistan
Mortgage refinancing refers to a process of paying your existing debt liability by securing second mortgage from the same or different lender. Borrowers opt for refinancing their mortgage to secure better rate on mortgage, increase term of loan or cash out their build equity in the house. Although mortgage refinancing is not a common practice in Pakistan, yet rising inflation in the country has convinced many middle class folks to buy Pakistan property on mortgage and later refinance this mortgage.
Need of Mortgage Refinancing in Pakistan
Middle and upper class segment of society in Pakistan is growing constantly. To accommodate the this sector, government and private sector in Pakistan is busy planning and developing some of the most luxurious real estate projects in major cities. In this regard, Lake City Lahore, Bahria Town and Central Park are some of the most prominent projects. Since buying house by paying cash at the spot is becoming hard in Pakistan, many buyers are hunting houses through bank mortgages.
Inflation is rising in Pakistan and paying high mortgage installments has become next to impossible for average buyer. In this situation, mortgage refinancing has emerged as an attractive and popular proposition. Buyers are using it to cut their monthly payments, extend their loan period and revise terms and conditions of a loan. However, mortgage refinancing is a challenging task. There are three prominent factors, which act as barriers for the approval of mortgage refinance in Pakistan
High LTV Ratio The higher is your Loan To Value (LTV) ratio, the lesser are your chances of getting an approval for mortgage refinancing in Pakistan. LTV reflects the amount of loan you apply for approval as a percentage of the total value of your home. For instance, if you intend to borrow Rs. 80,000,00 for a house worth Rs. 100,000,00 in Lake City Lahore, your LTV would be 80%. An ideal LTV in Pakistan at which almost all banks are ready to refinance is 80%. Some banks lend on higher LTV ratio but they also require buyers to purchase private mortgage insurance (PVI).
High DTI Ratio Just like LTV, the higher is your Debt To Income (DTI) ratio, the lower are your chances of getting approved for mortgage refinancing in Pakistan. DTI measures the capacity of buyer to repay his debt by dividing his total monthly debt obligations by his total monthly income from all sources. For instance, if your total monthly income and monthly debt obligations are Rs 40,000 and Rs 100,000 respectively, your DTI would be 40%. Ideally your DTI should be below 40% for mortgage refinance approval in Pakistan.
Low Credit Score Since home loan in Pakistan makes a big amount, banks are ready to lend to the applicants who have a good credit score along with a credit profile. A mortgage score of 800 points is considered ideal in Pakistan. If you plan to refinance your house in some posh area, lets say Lahore Lake City, most banks will accept credit score of 660 points. Since the definition of ideal credit score varies from lender to lender, some banks even lend at a score of 520 points with the requirement of mortgage insurance and higher rate of interest.
If you work to remove these barriers and approach the bank with proper financial planning, you can successfully get yourself approved for mortgage refinancing in Pakistan.