When you take out a new loan from a lender to pay off your old one, it’s known as refinancing your house loan. Reduced interest rates and a facility that functions as a top-up on the already-obtained loan are two key factors that often drive this transfer. However, there may be other factors at play in choosing to do so. In this post, we’ll go over five compelling arguments for refinancing your mortgage and the factors to keep in mind.
Why Shall You Go For Home Loan Refinance?
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Interest Payments Will Be Reduced
Lenders’ lower interest rates attract consumers to move from the original institution they had obtained the loan, which is probably the most prominent cause for refinancing.
Floating interest rates on most house loans are well-known, and they change with the movement of the macroeconomic rates in the economy.
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Change From A Fixed To A Variable Interest Rate Or Vice-versa
Homebuyers are often caught in the middle of the interest rate limbo, where they either pay higher floating rates than they would have paid if they had taken out an interest-rate-fixed loan at the time of their purchase, or they are forced to pay higher fixed interest rates when the overall base rate of the economy has gone down. As a general rule, a fixed-rate loan will cost more than a floating-rate loan.
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Loan Top-up Option
Besides reduced interest rates and more flexible terms, a loan refinancing might provide other benefits, such as getting an additional loan at the current interest rate.
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The Initial Lender’s Poor Customer Service
If the original bank’s customer service is anything than stellar, it may be time to consider refinancing your house loan. If the lender does not respond quickly to macro rate changes or does not send timely loan statements, this might be a problem for the borrower.
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Changing The Financial Circumstances Of The Borrower
A change in the borrower’s financial situation may necessitate a mortgage restructuring. EMI payments might quickly turn into a financial burden if your income declines. If this is the case, switching to a different lender that is ready to provide a loan with a longer term might be a good decision.
Essential Factors To Consider Before Refinancing Your Home Loan
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Interest Rates
Getting a lower interest rate on your home loan is perhaps the most essential incentive to refinance. If just a few percentage points are shifted, tens of thousands of dollars may be saved.
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The Current Interest-rate Climate
The official cash rate is one of the most significant elements in determining the interest rate on a home loan. Lenders’ rates rise in response to an increase in the cash rate, and the reverse is true if the cash rate falls.
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The Value And Equity Of Your Home
Refinancing is more accessible if you have equity in your home, which may be used as a down payment. You may be required to pay Lenders Mortgage Insurance (LMI) if the equity in your house is less than 20% of its worth.
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Equation
Even if you qualify for no fees, there may be various charges associated with refinancing your loan. You may also have to pay a high break-free fee for those on fixed-rate mortgages if you want to leave your existing lender. These may cost a few thousand dollars at times.
When refinancing, these charges must be taken into consideration. Use an online home loan calculator to see how much money you’ll save on a new loan, including fees, compared to your existing monthly payment.