When to opt for re­fi­nanc­ing home loan?

Accommodation Times - - Housing Finance -

If you are will­ing to opt for re­fi­nanc­ing home loans you need to first con­sider some as­pects and wait for the cor­rect op­por­tu­nity. Re­fi­nanc­ing means repaying an ex­ist­ing home loan be­fore its ten­ure with the money from a new loan taken un­der new terms and con­di­tions.

Tips on re­fi­nanc­ing:

1. In­ter­est rates in the econ­omy have fallen and it makes sense to re­tire the old high cost fixed rate loan with a new fixed rate loan at the lower rate. You can do this pro­vided rates have fallen enough to cover your pre­pay­ment penalty and the up front costs of ini­ti­at­ing a new loan (like pro­cess­ing fee, ad­min­is­tra­tive fee etc.)

2. If you plan to sell the home dur­ing the ten­ure of the orig­i­nal loan you will need to ter­mi­nate the loan bor­row­ing the re­main­ing prin­ci­pal amount against the home eq­uity or from the po­ten­tial buyer.

3. Switch from a Fixed rate loan to a more flex­i­ble Float­ing rate / Hy­brid prod­uct You may want to switch from a Float­ing rate loan to a fixed rate loan if in­ter­est rates start to move up (see the dis­cus­sion on "How will in­ter­est rates move?" un­der 'Choos­ing a Loan')

4. You can lower your monthly in­stall­ment pay­ments by ex­tend­ing the ten­ure of the new loan.In or­der to im­prove your monthly cash flows you can pre­pay an ex­ist­ing loan with 5 years to go by tak­ing a new 15 year loan for the re­main­ing prin­ci­pal amount.

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