Many homeowners choose to refinance their mortgage loans when the interest rate drops the slightest bit. However, they need to know the benefits and drawbacks of doing so to ensure they are making the right financial move. At times, this could be a disastrous move. How can a person know when it is the right time to refinance and when they should wait?
When is the Right Time to Refinance?
If you think you may want to refinance your housing loans with Dollarback Mortgage, ask yourself if it will shorten the term of the loan. Will it provide a lower interest rate or is their home equity that may be used for a large expenditure? Experts recommend refinancing an existing loan if the borrower is paying three percent or more on the loan. This is particularly beneficial when the home has equity built up. This lowers the risk while boosting the benefit for the lender. As a result, they typically offer an interest rate that is significantly lower.
What Should Be Considered Before Refinancing?
Homeowners must consider several factors before refinancing their mortgage. However, some factors carry more weight than others. Before refinancing, determine the cost of doing so. Research the lock-in period and penalty fee, and take the time to learn more about refinancing mortgage regulations.
Borrowers pay certain costs when refinancing their mortgage. This includes legal fees and possibly a penalty fee if the existing loan is still in the lock-in period. Most housing loans feature a two or three-year lock-in period. If the homeowner chooses to refinance during this period, they pay a penalty fee on the original loan amount. Often, this fee is between one and two percent of the home loan amount.
Furthermore, the borrower may be charged other fees, such as a processing charge or legal fees. This adds to the cost of the refinance and may eliminate any savings the homeowner would achieve by making this move. Make certain the savings will exceed the penalty charges before refinancing.
Homeowners must understand the prevailing regulations for this type of loan. These regulations apply whether the homeowner will refinance with the same lender or move to a new one. The Total Debt Servicing Ratio serves as one regulation, and this regulation states all debt payments of the borrower cannot exceed more than 60 percent of their gross monthly income.
Fortunately, the Monetary Authority of Singapore has made it easier to refinance a mortgage. They have introduced more flexibility into the management of the borrower’s debt obligations. Borrowers may find they can now refinance when they weren’t able to in the past.
Never rush the refinance process. However, if you can lower your interest rate and make the monthly payment without difficulty, this option should be considered. The same is true if equity can be pulled from the home for other purposes or the loan term can be shortened by a number of years. Make certain the saving achieved will offset any penalty fees as well. If these criteria are met, refinancing may be the right choice for you. Speak to lenders to determine if this is the case.