Points to Consider before Refinancing Your Home Loan

Refinancing has become a viable option for many existing home owners with high interest rates on their current mortgage. Refinancing is essentially a "replacement loan" from a different lender and (hopefully) a lower interest rate. 

Why should I choose to refinance my home? 

•  You may be able to take advantage of lower interest rates.

•  You may be able to extend the repayment period of your mortgage. While you will end up paying more in interest charges, this will reduce your monthly outgoings.

•  You may be able to switch from a variable rate to a fixed rate mortgage, giving you greater security in the future from potential rate increases.

•  You may be able to increase the amount of your mortgage to pay off other higher interest rate liabilities such as credit card debt, cell phone debt and personal loan debt. This will enable you to cut steeper costs incurred from other higher interest rate charges.

(For more reasons behind refinancing, please read: Reasons to Refinance Your Home Loan)

What should I take note of when refinancing my home?

If you decide to borrow more than your existing mortgage, you need to be wary of your budget. If you default on your payments, you run the risk of losing your house.

If you do not calculate the costs involved with refinancing correctly, you could end up paying more in interest charges.

Thoroughly review the contract of your existing loan, an early pay out could involve a penalty that would negate the benefits of refinancing. 

(For more reasons against refinancing, please read: Reasons NOT to Refinance Your Home Loan)

What will it cost me to refinance my home?

Refinancing does carry some costs that you need to be made aware.

•   Valuation Fee – The payment for a professional appraisal of the value of your house.

•   Credit Report – A payment for an assessment of your credit health

•   Escrow – A payment for money transferred by a third party.

•   Lender Fees – Any other fees that are incurred by using a particular lender 

Am I eligible for refinancing?

Applying for mortgage refinancing is just like applying for another loan. There is a set criteria for acceptance. Every missed mortgage payment will count against you in the application, either resulting in a higher interest rate or a rejected application.