By Eleanore D. Sanchez
If done properly, refinancing can benefit borrowers by allowing them to secure better interest rates and lower monthly payments for their loans, says lender Mortgage Choice on its corporate website.
In addition, the organization said it loan restructuring can allow you to switch between fixed and variable rates. Fixed rate refers to stable payments made over the prescribed period, as opposed to variable rates, which change with given market conditions.
Refinancing likewise allows the borrower to maximize their home’s value as an asset.
“Your home is likely to be one of your most valuable assets, and by harnessing home equity you have the opportunity to build additional wealth or simply achieve personal goals,” the firm said.
Reworking your mortgages could also help you consolidate and streamline debt, lowering your monthly payments by “folding several high interest debts into one lower rate debt.”
These are but a few of the benefits of taking advantage of refinancing packages. However, its potential benefits must be carefully weighed against the costs of restructuring your mortgage.
Among others, expect refinancing to involve exit costs, which apply when you pay out a loan early, usually in the first three to five years of your term. The fee could be a percentage of the remaining loan balance or a predetermined charge. It is best to check your loan contract for more details.
Getting a new loan could also come with a range of upfront fees, but not all lenders make these charges, while some are negotiable. They may include loan application fee, valuation fee and settlement fee.
Your new lender may also charge a lenders mortgage insurance (LMI), which is a type of insurance designed to protect the lender in case you are not able to make loan repayments. LMI usually applies if you borrow 80% or more of your home’s value and the loan isn’t transferable between lenders.
Some states also charge tax on your mortgage, so expect stamp duties on your newly reworked loan if your refinancing pushes through.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan