The amazing home loan that you got a few years ago no longer looks so attractive. The interest rate has gone up and it is beginning to feel like a burden. But everywhere you look, you see people enjoying fantastic new rates. Is there anything you can do about it? Yes, there is. The solution may lie in refinancing your home loan. But should you take this option?
What does refinancing mean?
Refinancing basically means trading your current home loan for another, more favourable loan. The lender pays off your existing loan, and in exchange, you will have a new loan with a lower interest rate, a shorter term and better conditions. If you are struggling to pay off your existing loan, then it may be a good idea to refinance it. If you want to save on interests in the long term, refinancing will be a good idea.
What are the benefits of refinancing?
Refinancing a home loan has the following benefits:
- With a lower interest rate and smaller fees, your monthly mortgage payment will become lower. This will free up some much needed cash that you can put to other uses. Refinancing makes perfect sense if you are having a hard time paying your monthly installment .
- If you have a 30-year mortgage that still has many years to go, replacing it with a shorter term loan can help you save a lot of money in interests. You may have a higher monthly payment, but the total interests you will pay over the life of the mortgage will be much lower.
- Having a mortgage with a variable interest rate can cause you a lot of headaches. Unfortunately, this is the type of home loan many borrowers end up with. It makes sense to replace it with a fixed-rate loan where the interest rate stays the same.
- If your situation has improved vastly since you got the mortgage, then it’s only natural that you would wish to become debt-free as soon as possible. But the lender will not allow you to pay more than the agreed monthly amount. In such a case, refinancing could be the best option.
- Refinancing allows you to consolidate all your loans into a single loan, which makes it easier for you to manage your finances. Suppose you have a home loan, a car loan, credit card loan and personal loan. Consolidating them by refinancing your home loan can reduce the total interests and make it easier to pay the loan.
What are the disadvantage of refinancing?
There is no coin without two sides. Refinancing has a few disadvantages as well. The first is the closing cost. You will have to pay multiple fees before you can get the loan, which can add to your costs. Another is you could end up with a higher monthly payment if you decrease the loan term. Your home equity may also be reduced if you do not pay the closing costs out of your pocket.
What’s the conclusion?
Considering that the advantages of refinancing clearly outweigh the disadvantages, it is definitely a good idea to go for it, but only if you get a good refinancing package from a reputable bank or financial institution. Before approaching any lender, make sure to do a thorough research and compare loan rates in Singapore . Knowledge, as Churchill said, is power.