For beginners, here is the definition of refinancing home loans. It is a process in which your present home loan is replaced or upgraded with a better one. Especially, the one that allows you to benefit in a better way or that you found some features that make it more desirable than your original mortgage. Here are the reasons why you could opt for refinancing home loan. The longer your loan term is, better will be the interest rates and particularly lower variable rate offering a line of credit. There are varieties of refinancing calculators; you can use them to check how much you could be saving through lower interest rates. And I do quote that you will certainly be saving a fortune through lower interest rates by upgrading your home loans.

Refinance Home Loans

Refinance Home Loans

Is It Really Possible To Benefit From Refinancing? Yes! Here Is The Explanation

  • Ask yourself if you want to stick to the fixed interest rate or if you want to choose a variable rate, because each has its pros and cons. A fixed rate will minimize your exposure to the risk despite the fluctuation of the standing rates, while the variable rates may offer you substantial advantage of reaping benefits when the rates drop, but along comes the risk of surging of the rates as well. Traditionally it was considered that if the savings you make out of lower interest rate is greater than 2%, refinancing the loans is a better alternative. But many lenders of the present day attest that if you can recover 1% from the lower income benefit then you will substantially recover the refinancing costs.
  • If you can reduce the interest rate, you will not just save the funds but also, you will increase the equity in your house while your monthly payment drops.
  • Also if you are planning to stay in your mortgaged property for many years, only then will you make the best out of the refinancing strategy, but if you plan to stay for a short period then the refinance expenses cannot be recovered from the savings. So before you refinance home loan, you pay attention and assess your financial situation as to broaden your idea of this strategy.
  • If you are specific to repaying the loans over a vast period, then you can upgrade your repayment plans to reduce your repayment amount and extend the term duration, this extends the period over which you can pay your loans but also reduces the amount that you need to pay on each installment.
  • In some cases, you may wish to renovate your mortgaged property and may be considering a renovation project. Thus, you will need a good funding to complete the project successfully and with the option of refinancing to a line of credit loan, you may be able save a fortune on your renovation.
  • If you require the funds for education purpose, you can refinance home loans as it will be beneficial to recover the expenses as you will be able to recover the funds via the equity on your property that increases exponentially with the increased duration over which you pay and also, the reduced monthly installments.
  • If an investment property is on your mind, then you can use the equity from your home loan to fund your investment. For that, the refinancing can unlock various means to save the funds for your investment.
  • Refinancing can unlock the money if you desire to pay off other smaller debts, because when the rates are lower you will be rewarded with savings that you can utilize to pay other loans like the credit card debts. Meanwhile, you must be aware of the fact that when you refinance home loans to consolidate your debts, you will pay higher repayments despite the longer time of loan repayment. Also, when your debts are consolidated, you will have an option of one repayment per fortnight or for a month instead of having many.

Downside Of Refinancing

Here is why refinancing isn’t for everyone.        

  • Debt management is an intricate issue that needs careful management; else there is more chance your choice would do harm than good. Refinancing is undoubtedly a dashing financial motive to bring down your mortgage payment, but if you are unsure of the risks associated with refinancing the home loans, then steer clear of self-made decisions, because refinance is not the logic of making quick bucks for all financial problems. You must consult a professional financial advisor who will inform you in detail about the twisted logic of unlocking money without risking the prospects of your ability to repay the debt.
  • If you are choosing to refinance to extend the term duration by borrowing a larger sum of funds. You will be making larger repayments. It means a large interest over the total span of the home loan.
  • With repayment, you will be bearing several smaller expenses in the form of consultation charges and the processing fees. Did you know refinancing can gorge 3% to 6% of your principal loan amount depending on the lender and the market rates? Hence, if you are planning to extend your savings to cover all these little expenses, then you must consider the refinancing the home loan, because only when you make saving despite the consultation and the fragmented micro expenses will this option benefit you. Hence, you must use a loan calculator to square down each penny you will be saving.
  • You must be rational when you are opting for such a plan to benefit you over a longer time. You must acknowledge the risks that is involved in unsecured loan policies if you are not capable of handling the fluctuations of the rates you will certainly regret making the choice.
  • Also, if you are refinancing from a different lender after bearing the home loan from the original lender, you will be subject to penalty fee under original lender’s exit agreement. So you are advised to make a proper inquiry regarding refinancing with different lenders.