Refinancing is for homeowners who are currently servicing an existing housing loan with a financier, and would like to refinance with other financiers to enjoy savings from lower interest rates.
There are a few reasons on why you want to consider a refinancing:
- Free Up Cash
Want a better cash liquidity? Want to do some investment and yet no free cash? Refinancing provides you a way to gain access to your property equity without having to sell your property. In order to do so, you will need to own a property that has appreciated in value.
Example:
If the valuation of your property has appreciated by $100,000 from the time you start your mortgage loan, you can now talk to your other financiers to refinance your current mortgage to a higher loan amount. Thereon, you would have extra cash to fulfill your other personal needs!
- Great Savings on Lower Interest Rate
Current competitiveness in the financing market makes it a good time for homeowners to find and explore better loan deals out in town.
It is possible to save thousands of dollars in your entire loan quantum by refinancing your mortgage loan with a lower interest rate, paying lesser fee charges or by reducing repayment time. Alternatively, you may wish to consider paying a lump sum of money upfront to your financier, which in return, will help to reduce your monthly repayment.
Do be aware of early redemption clause, there will be penalties incurred if you redeem your loan earlier than the stipulated time stated; which period is often 3 years.
- Consolidate your Debts
Are you struggling with your credit card debts? Paying too much just for interest? One of the easiest ways to handle credit card and high interest debts is to refinance them into your mortgage.
Simply refinance the amount which you owe in total; credit card debts and any other high interest loans, and repays monthly with the same low interest rate you enjoy from your home mortgage.
Example:
Balance home mortgage loan - $50,000
Other high interest debts loan - $20,000
You then refinance for the total amount - $50,000 + $20,000 = $70,000
By refinancing, it enables you to pay off the $20,000 at the same low interest rate of your home mortgage. This will not only ease your financial situation, it will also provide you great savings from the difference you enjoy in interest rates.
- Increase your financial security
Worried about interest rates rising? If you’re on a flexible Interest Rate home loan for a long period of time, you may now want to refinance to a fixed rate loan. This gives you a peace of mind and increases your financial security, especially in volatile times knowing that your monthly payments will not remain the same.
- Reduce monthly mortgage installments
↓ Monthly Mortgage loan Installment = ↑ Monthly Cash Flow
What are the costs for refinancing?
Below are the typical charges incurred for a refinancing:
- Legal fees
- Usually cost estimated $2,000
- Some financiers offer absorption of legal fees if only you make a switch to their bank.
- Early Redemption Penalty
- Financiers often charge about 1.5% of the outstanding loan.
- Example: Outstanding loan of $200,000 will incur an early redemption penalty of $3,000.
When should I refinance?
Refinancing makes sense when you can benefit or save money from a reduction on interest rate – it will be usually beneficial to you if there is two percentage points lower then your current interest rate. However, you should ask yourself the below 2 questions, before doing a refinancing on your property:
- How long will you be holding on to the property?
You should not have a refinance if your considered hold-on period is less than 3-5 years, as it is not possible to recoup the cost of refinancing incurred during this short period.
- Do you need extra cash for your other personal needs or investment purposes?
As refinancing helps you to access to your property equity without having selling your property, you now can have extra money to fulfill your personal needs, or for your investment purposes while enjoying loan at low interest rate.
Example:
If refinancing will give you a savings of $100 monthly in your entire loan quantum, and you plan to sell off your property in 2 years time or less.
Do you need a refinance which the fee charges add up to be estimated $6000?
2 years = 24 months
24 months x $100 savings per month = $2,400
Cost of Refinancing > $2,400
Therefore, you should not have a refinancing in this case.
