All You Need To Know Regarding Home Refinancing

Assalammualaikum and hye guys,

Such a long time I have not posted my blogpost in English language. Well, before the semester begins, let's improvise my English, therefore my entry will be totally full in English for today, okay?

I want to share with all of you that I have just returned home in Shah Alam. Yes, I had my staycation in Muar, basically it is my hometown. I want settle down few things regarding on my first house. Alhamdulillah, now I have my own property at a young age. I am sure a lot of young people will be in the same boat as me. Nowadays, there are so many trick and tips on how to buy a house in your early 20s and for sure, we will start thinking to buy the another, right?

And sometimes we wonder, how people who own 15 houses get the money?

Here comes the term of home refinancing.

Home loan refinancing has been popular as a viable investment option for most property buyers. Refinancing a mortgage simply involves paying off an existing loan and replacing it with another. By refinancing, you are paying off your old loan by obtaining a new loan plan, which is perfect for folks who have properties that are difficult to find buyers such as Cyberjaya property.

In Malaysia, there are some factors that make home loan refinancing an attractive form of credit. First, even though the property prices have significantly increased in the last few years, the interest rates have gone down dramatically. Again, the bank lending spread has substantially decreased below the base lending rate, (BLR). Bearing in mind that it involves obtaining a fresh loan with new terms, a lender will have to access vital information and documentation before verifying you to qualify for a refinance. On most occasions, the below information is often examined when you apply for refinancing.

• Your income and employment history.

• Your payment and credit score history.

• Your valuable assets including stock, savings and retirements accounts.

• An appraisal to examine the current value of your property.

Typically, most individuals refinance their mortgage so as to take advantage of the relatively lower rates. But, home refinancing has other potential benefits as well. From the opportunity to acquire a lower interest rate, an opportunity to shorten your mortgage term and converting from an adjustable-rate mortgage (ARM) to the fixed-rate mortgage. Again, it gives you an option to consolidate your debt and tap your property’s equity so as to finance a large purchase. You have every reason to refinance your home loan.

And because home loan refinancing may cost three to six-percent of the loan’s principal, and just like taking out an original mortgage, it requires a title search, appraisal as well as the application fees. This implies that it is imperative for any homeowner to first determine whether her/his reason for refinancing offers real potential benefits.

So why would you consider home loan refinancing?

Securing a lower interest rate.

Arguably, this is the main reason why most homeowners chose to refinance their mortgage. It just means that you are swapping a higher rate of interest for a relatively lower one, allowing you to save considerably on your monthly mortgage payments. What’s more, it enables you to save a significant amount of dollars in interest over the course of your loan.

Even in cases where the market interest rates remain constant, the prospect of switching to a new bank that can provide you with decent, attractive promotional rates can be beneficial. You should know that even a slight change in the mortgage interest of yours could potentially result in significant savings as a consequence of the long-term nature as well as the compounding nature of most mortgages. However, it is imperative to note that if you borrow a larger amount and over an extended period even with the reduced interest rate, your total interest costs will probably still be high.

Converting from adjustable-rate to a fixed-rate mortgage and vice versa.

If you are currently under the adjustable-rate mortgage, this could be the perfect opportunity to shift to the fixed-rate loan. While ARMs usually start out offering relatively lower rates as compared to their fixed-rate mortgage counterparts, the periodic adjustments typically result in increased rates. When this happens, it could be an excellent idea to convert to a fixed rate mortgage which has a lower interest rate and equally eliminates your fears over the potential interest rate hikes in the future.

On the other hand, changing from a fixed-rate to the ARM can also be a viable financial strategy, especially in a falling interest rate environment. When the rates continue to drop, the periodic rate adjustments on an ARM frequently result in reduced rates plus smaller monthly mortgage payments thus eliminating the need to refinance each time the rates drop. However, this would be an unwise move in an area where mortgage interest rates are increasing.

Extending your loan and paying lower installments per month.

Your financial situation might change at some point in time. Even though you have always been in a position to make timely mortgage installment payment, certain life scenarios such as medical expenses, loss of income and perhaps a new addition to your family can potentially deem you unable to make your monthly payments on time.

It is critical to note that most lending institutions do not tolerate continuous late payments and you should try as much as possible and avoid becoming a complete loan defaulter. Refinancing can aid readjust the terms of your existing loan before your situation worsens further to cause massive debts, an unsound credit status, and even bankruptcy in some cases. By increasing the tenure of your loan system, you can somehow readjust and pay a more attainable monthly installment.

Refinancing to cash out your home equity.

It’s a reasonable proposition to cash out your property equity by refinancing your home. In fact, this could even be a fantastic financial move in certain circumstances. If your home value has increased in the past few years, the difference in its current market price and its initial valuation may be used to drive money out of your home. If you have adequate equity in your home, you can decide to conduct what’s known as cash-out refinancing to add new siding, fund your kitchen remodeling project or even complete any other necessary home improvement projects you’ve always craved for. Of course, this mostly depends on what you may be trying to accomplish and if you are an individual who can handle his/her financial debts in a responsible manner.

Consolidating your debts.

You can also refinance so as to consolidate your debt. The prospect of replacing high-interest debt with a relatively lower-interest mortgage is often a very good idea. You can utilize a refinancing project to house all your payments under a single roof, especially if you are overextended on many credit card bills as well as multiple loans. Depending on the particular loans you are seeking to consolidate, refinancing may guarantee you with a lower and much affordable interest rate. For instance, the prospect of refinancing to cover your credit card bills, a second home mortgage or even personal loans could potentially offer your substantial interest savings.

However, it should be noted that home refinancing does not always bring with it the instant and automatic effect of financial prudence. In fact, you should only practice it if you are confident that you’ll be able to rebuff your urge to spend more once refinancing bails you out of your problems. If you didn’t know, studies tend to show that a significant number of those who at some point, generated high interest debts on vehicles, credit cards as well as other purchases will probably do the same after home refinancing presents them with an opportunity. This scenario can create an instant loss of equity in a property, extended periods of hiked interest payments on the new mortgage and finally, the endless perpetuation of your debt cycle leading to bankruptcy in the long run.

Apparently, there are lots of positives when it comes to home loan refinancing. It is a useful tool which might help you manage your finances when done correctly. However, there are some cases where you’ll have to be extremely careful with refinancing including:

• If you’ve been having problems with your credit history, just know that refinancing would add to your existing debts, a factor which could eventually affect your credit status negatively.

• If you intend to cash out quickly, processing refinancing usually takes extended periods just like a regular mortgage and is therefore not preferred.

• If you realize that the exit charges from your previous loan plus the entry costs to your new plan such as insurance, valuation fees, and other legal charges would overshoot the potential savings of yours.

The Bottom Line

Home loan refinancing can be an essential financial move especially if it can help you reduce your mortgage payment, help build equity quickly and lessen the terms of your loan among other benefits. However, before you consider refinancing, it is imperative to examine and understand your financial situation. Also, when it comes to acquiring the best possible rate, do your due diligence and shop around. In fact, you should ask at least five lenders for a quote and ensure that you compare and contrast not only the interest rates but the fees associated with the loans as well.

So, I hope that it will help people out there to get few properties at least. So, good luck!

p/s: Visited my first house yesterday, matters regarding maintainance are done and now in a phase of renovation (put tiles and do grill). Yes, it is apartment. Already feel glad and thankful what I have now and In Shaa Allah, I will consider home refinancing to own other property in future later on. =)

Lots of love,
Neeza