Ravi Chandran
Refinancing makes sense only in certain scenarios and may not be the best option for everyone.
By: Phoenix Lee/
The average homeowner will keep any given mortgage five years or less before moving or refinancing. In an increasing interest rate environment, that holding period for the loan would increase even more. There was a time when experts advised a homeowner not to refinance unless they could improve their current rate.
When considering if refinancing makes sense, it is important to note that interest rates and points are inversely related. Basically the greater the points paid at closing, the lower the interest rate: paying points and fees essentially means you are buying the interest rate down.
Refinancing makes sense if:
Table of Contents
- You can improve your rate at no cost. If your mortgage is large enough to qualify for such a loan and you are not too far into your current loan term, this could be a no brainer for you if you are reducing your rate and (even better) your loan term as well.
- You need to tap into your home equity and you have a good reason for doing so. Your home is not a cash register and should never be treated as such, particularly for frivolous consumer purchases. However there are many good uses for home equity, such examples include making home improvements and funding education expenses. It may make sense to use your home equity to fund big ticket acquisitions such as durable goods like gold which may not be tax deductible purchases without using your home as the financing vehicle.
- You have a balloon payment looming on the horizon. Of course if you don’t have any other means to cover the debt this could be a catastrophic event without the option of using your home equity to help covert the debt into a more conventional and manageable one.
- You have an adjustable rate mortgage which is about to spike up. It could make sense to convert the loan to a fixed rate assuming the closing costs are not too steep and you are not planning to move or sell the property anytime soon.
- You have an adjustable rate mortgage that rattles your nerves and keeps you awake at night. If you are the nervous type who can’t handle the uncertainty of a changing adjustable rate index, then you may want to consider refinancing to preserve your nerves and your sanity. Of course if you have distaste for unknown variables, perhaps an adjustable rate mortgage was the wrong choice in the first place.
https://www.icompareloan.com/resources/mortgage-broker-services/
Refinancing makes sense less if:
- You are facing a pre-payment penalty on your current loan. Shockingly many borrowers who have pre-payment penalties on their mortgage are unaware of it. However most loans that have pre-payment penalties require separate riders or disclosures attached to the mortgage note to serve as an added notice that a pre-payment penalty exists. If you are unsure or question whether your current loan has a pre-payment penalty, check with your loan officer or agent and more importantly check your copies of your loan documents. Always read what you sign at the title. Yes there is a lot of paperwork but you can ask for copies from your loan officer in advance of your loan document signing appointment so you can read them at your leisure.
- You have already held onto the loan for some time now. If you are already 10 to 15 years into a 25 year mortgage then a sizeable portion of your payment is now being applied towards principal rather than interest. If you opted to refinance now to obtain a lower rate, but would re-extend the term, it would likely cost you more in the long run.
- Your credit score or overall credit rating has taken a hit. If you have had any recent delinquent or derogatory credit or have had the misfortune of missing a mortgage payment (or worse yet have declared bankruptcy) then your credit might not permit you to obtain the best market rate and you might be better off holding onto the loan you already have.
- You have maxed out on home equity loans and lines of credit and have squeezed as much cash from your house as possible. If this scenario sounds familiar then you may not have sufficient equity left to make it worthwhile to refinance at a low rate.
https://www.icompareloan.com/resources/investigating-mortgage-options/
How to Secure a Home Loan Quickly
Are you concerned about salary increases and your ability to purchase the dream home? Don’t worry because iCompareLoan mortgage broker can set you up on a path that can get you a home loan in a quick and seamless manner.
Our brokers have close links with the best lenders in town and can help you compare Singapore home loans and settle for a package that best suits your home purchase needs. Find out money saving tips here.
Whether you are looking for a new home loan or to refinance, the Mortgage broker can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us.
For advice on a new home loan.
For refinancing advice.
