There are a lot of questions that people have when it comes to financing and refinancing. From the very beginning, every person has long been focused on trying to make their payments on time, so they do not have to worry about anything else. Fortunately, there are a lot of ways that individuals can refinance their mortgage loans about their finances.
In this article, we will discuss housing loan refinancing and some of the things that every person should know about it.
What is mortgage refinancing?
People who have homes know just how hard it can be to finance, much more to refinance. However, since life almost always takes an unexpected turn, it is obvious that many people would rather turn their attention towards how they can maximize the potential of their money and maybe even make use of some equity that they got from their property values.
With that, the first question is: what is mortgage refinancing?
Mortgage refinancing is the process of using a new loan with a lower interest rate to pay off the old loan with a higher interest rate.
What are the advantages of home loan refinancing? A home loan comes with refinancing, which is absolutely amazing. It comes with the following advantages:
- It gives individuals lower interest rates compared to main financing and other loans.
- It has a shorter loan period that gives individuals more financial flexibility.
How exactly does home refinancing work?
Home refinancing is simple if you have the time of the day to understand it.
For example, if you took out a home loan of S$1,000,000 because you need it for some reason and the interest rate is at 2% to finance a property that is worth around S$1,300,000. You pay off say around S$4,000 a month for the loan. Eventually, you will reach a point that you have paid off about half of your loan and your outstanding loan balance becomes S$600,000.
At that point, you should expect that your home value appreciates to S$1,500,000 and you will hear some offers about your home offering a lower interest rate of 1.5%. Will you get it? Is it financially sound to do so?
The answer is yes. If you decide to go ahead with the refinancing, you could apply for up to 75% of your home current market value. You can then use the money for other big-ticket items you have on your list.
What Are The Costs That Come With The Loan?
There are some costs that you should know more about. They are the following:
- The estimated legal fees will be around S$2,500.
- Early payment fees for refinancing before the end of the lock-in period comes with a penalty fee of up to 1.5% of your outstanding loan.
What are the benefits of refinancing?
There are certain refinancing benefits that would make an individual happy and decide to apply for it.
First, you can save money on lower interest rates. Because you are trying to obtain a new loan at a lower loan amount and a lower interest rate, you get a lower level of refinancing. Lowering your interest rate can result in having significant savings because even the smallest change, such as 0.2% to 0.6% can lead you to an already big amount.
Another one is that it can boost your cash flow.
Refinancing can lead to lower monthly repayments, and this will help you manage your cash flow better than with any of your existing monthly mortgage payments.
You can also change your loan type. There are a lot of homeowners who want to refinance because they want to change their loan types from fixed to floating rates.
Is It Time For Me To Consider Home Loan Refinancing?
There are different types of people who can consider home loan refinancing, such as the following:
- Those who are on the fourth year of their mortgage, and are not under a lock-in are often no longer bound by the lock-in period, so it is the perfect time for them to consider refinancing.
- Those who bought properties are investments and who plan to sell in the near term should consider refinancing as well as it can help them enjoy the lowest rates for the first few years.
- Those who need money should also consider this as it helps them get more out of their property.
Some Tips on Home Loan Refinancing
Refinancing your home loan can help you out a lot, so there are some tips that you must do to follow through with it.
First, you should always monitor the lock-in period. Your lock-in period would require you to bear higher repayments and penalties if you decide to refinance during that period. Make sure that you look at this period ahead of time before going through the process.
You should also look for a better offer by changing banks if needed. Do not lock yourself up with the bank that you are currently in. You should also look at making a switch if necessary.
If you want to be able to loan a big amount, you should improve on your TDSR (Total Debt Servicing Ratio). The TDSR is a framework used by banks or financial institutions to ensure that banks lend and people borrow responsibly. Take control of this, and it should be easy to do something about it.
Make the Right Choice
Whether you are looking at refinancing for your cash flow or just because you want to have a good chance of getting more monetary flexibility, you should make sure that you make the right choice and always consider all of your options before you go ahead with the plans you may have.