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Refinancing is a term that gets thrown around a lot when it comes to
home loan. Some people do it to strategically reduce the interests they
pay for their homes; whilst others do it to free up more cash for their
monthly usages.
If you’re actively looking to make changes to your home loan in order to
suit your current financial requirements, read on to find out more about
home loan refinancing.
Home loan refinancing refers to the act of replacing an existing home
loan with a new loan under differing terms and conditions. In layman’s
term, think of it as borrowing money again to pay off the debt you owe
in your current home loan account.
Advantages of Refinancing Your Home Loan
Reduce Your Home Loan Interest
Taking advantage of changes in Base Lending Rate
(BLR) which influences home
loan interest rate), refinancing is a great way to reduce the monthly instalment on your home loan should you apply for it when
BLR is dipping
or when a better interest rate is offered by the banks.
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Example: say your home loan has a fixed interest rate of 6.6% p.a.,
and the current interest rate for home loan refinancing is 4.4%;
you’ll be paying 2.2% less interest every year for the rest of your
loan period if you go with refinancing.
To put things into perspective, 2.2% of RM400,000 (i.e. value of a
mid-range condo unit in Cheras) is a staggering RM8,800!
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Extend
Your Loan Period
Home loan refinancing enables you to alter your loan period depending on
your existing needs. If you have monthly cash flow issues, taking up a
refinancing plan with a longer loan period allows you to pay less in
monthly instalment, hence freeing up a greater part of your monthly
income for personal use. This comes in very handy especially when you
have a sudden increase in commitment, such as buying a new car or paying
for a child entering tertiary education.
Shorten Your Loan Period
As a continuation from the previous point, say you are now more
financially stable compared to when you first took your home loan, and
you’re thinking about reducing your loan period (e.g. from 30 years to 10
years) in order to save on your interest cost; home loan refinancing is
a viable option for you to do that, especially if you’re currently stuck
on home loan package without flexible prepayment options.
Change
from Fixed Rate to Variable Rate and Vice Versa
Depending on the type of package you chose, your home loan may feature a
fixed interest rate (where the interest is fixed for the loan’s entire
term regardless of market conditions) or a variable interest rate (where
the interest rate goes up or down along with market rate). Fixed rate
gives you peace of mind throughout the loan period due to its
predictable nature; whilst variable rate allows you to pay less for your
home loan given the right market conditions. With home loan refinancing,
you’ll be able to switch from one to another to suit your current
financial strategies.
Consolidate Your Debts
Owners of multiple properties would attest it’s a real hassle to keep up
with each and every one of your home loan accounts. If you too are
repaying several differing home loans all at the same time, a once-off
refinancing plan might allow you to consolidate everything into one
single account, so you’ll only be getting one statement and making one
payment every month. To some: the convenience alone is worth getting a
refinancing plan for.
Sources:
http://imoney.my
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