Refinancing loan is you apply for a new loan to cover your previous loan which can help to reduce the monthly loan repayment. If your facing financial difficulty after 5 years of loan repayments, then this option will be the best to you to reduce your financial burden by getting the lower interest rate on home loan and can also get the cash out funds to pay-off all of your debts.
Here are the top 4 reasons for those homeowners or property investors should consider to refinance their home loan/ mortgage loan;
➊ Your property have build equity and want to cash out:
If your property valuation has increase over the past few years, then you can pull money out of your property from refinance. Let us explain to you clearly as follow;
Initial value of your property: RM 300K
Current value after 10 years: RM 400K
Remaining unpaid balance on your mortgage: RM 250K
Now if you borrow 80% of the current property value from bank, you could get up to RM 70, 000 in cash.
The most benefit you will get is lower interest rate compare to existing home loan.
*Note: Do calculated after deducting the unpaid mortgage balance, but no include any entry and exit costs.
➋ You want to get the better interest rate
Mortgage interest rates tend to fluctuate and if your current home loan is too high, i.e. when interest rates were high, refinancing without cashing out or extend loan tenure, can help yourself to reduce the total interest costs.
Even if the interest rate is remain stable in current market, you may just wish to change to a different bank that can offer the lower interest rate to you. Do remember that even a little changes in interest rate, it can still bring a major savings due to its compounding effect and the long-term nature of many mortgages. But, if you’re borrow a larger loan amount, over a longer tenure, even with lower rates than your previous loan, your total interest cost will probably increase.
➌ You wish to extend your loan tenure or reduce the cost of monthly repayment
Although you have been able to make your mortgage repayment on time, but there is certain life events such as loss of income, new member in your family or medical issues are often happened and it may affect your affordability.
In addition, if you continuous late payment, its interest will be a burden, it will ruin your credit history and even need to declare bankruptcy. And no any bank will be tolerated continuous late payments. If that really happened, don’t lost your hope, refinancing can help you to restructure the terms of your home loan before the situation goes worse.
With refinancing your home loan, you are able to re-adjust your loan tenure to make the monthly repayment more affordable for your current financial status.
➍ You have difficulty to manage your debts
If you’re over apply on multiple loans and credit card, you can use this way (refinancing) to pay-off all of your debts.
Depending on the type of loan that you are applied, refinancing can offer you a lower interest rates. (Do your research which bank offer lowest interest rate and whether it is suit to your current financial status) For example, you can use the cash out money from refinancing to clear off your personal loans, credit card bills ad even a second home mortgage.
But, another types of financing such as car loans, the benefits may not lie in a lower interest rate but rather with smaller monthly repayments. As car loan interest rates are already lower than mortgage rates.In addition, the interest rates for most auto loans in Malaysia are calculated as a fixed and flat rate instead of reducing balance method.
Refinancing not only can solve your affordability issues, and can also turn your cash flow to positive by getting cash out money from refinancing.