Home loan refinance today is more straightforward than ever before, courtesy the Home Affordability Refinance Program. This program makes it possible for you to refinance property even if you’ve got an unpaid loan that exceeds the value of the property. However, the ease with which you can refinance your home should not be a stimulus to do so. You should consider a home refinance only for the right reasons. You need to have the answers to the questions given below.
What’s your motivation for considering a refinance?
A new loan with lower interest rates and/or a longer repayment period is the most common justification for a refinance. A home refinance can save you cash in the short term as well as over the long term. The average reduction in interest rates is of around 1.5 percentage points.
How do you plan to use the money you will save? The savings accrued from a refinance offer an opportunity to secure your future, insure property, pay off other loans, or maybe just travel a bit. You need to be very sure that you will make good use of the money saved.
What is the Interest Rate at Present?
A home refinance is worth the effort only if it yields a lower interest rate. Nobody refinances a home loan to pay heftier installments. Find out what the average mortgage rate for loans similar to yours is. Compare it with past figures, and consult your bank or lending institution on what the trend is likely to be. If people are not refinancing and the market is slow because of high interest rates, then you’re better off waiting for things to pick up.
It is worth noting that published interest rates serve only as a rough guide. The rate you’re offered will depend upon factors such as your credit score and the type of loan you want. If you can get two percentage points shaved off your existing loan, then refinancing is a good idea.
Potential Penalties
Get a detailed idea of the costs involved with a home loan refinance. Some of the costs to consider include moving costs, disbursement costs, and valuation costs. These extra expenses can be up to 3% of the amount being refinanced. Some refinance loans come with a compulsory lock-in period. If you repay the loan early or wish to refinance it again, you may be charged an additional fee that can be as high as 5% of the loan amount.
Careful consideration and basic math will help you understand the best terms and the right time for your home loan refinance.
