REFINANCING A HOME LOAN

Many homeowners apply for refinancing a home loan for reasons, which include taking advantage of lower interest rates, moving from variable rate to fixed rate or to take advantage of the equity of the property. Before you apply for refinancing a home loan, you should take time to become knowledgeable about the process, the advantages and disadvantages.

There are important issues to consider, such as how affordable will the new mortgage instalment be and how much will you have to pay for appraisal costs and closing costs. It is also important to think of the possible proceeds of refinancing a home loan.  The proceeds of the new loan will pay off the balance of your existing loan and the rest will pay out to you. Are you going to make a good investment with the money?

What are the disadvantages of refinancing a home loan?

The disadvantages of refinancing a home loan include:

• A new mortgage will take longer to pay off.
• The lending criterion is much stricter now and you may not qualify for a new mortgage.
• You can face penalties for paying off your mortgage early.
• It is possible that you can be charged with higher interest rate on the new mortgage than what you were paying on the original home loan.
• Refinancing includes costs such as closing costs, fees and registration costs.

The advantages of refinancing a home loan include:

The advantages of refinancing a home loan include:

• You can obtain a cash amount by refinancing that can be used to consolidate other debts or to spend.
• You can receive a lower interest rate offer than what you are currently paying.
• It is possible to reduce private mortgage insurance by the increased value of your property.
• With refinancing a home loan, you can lengthen or shorten the repayment time.

When you refinance, you pay off the existing mortgage and take a new one. Many home owners use the equity (market value of the property) that has been build up to consolidate debts, to make home improvements or send a child to university.  Responsible home owners are always looking for ways to build equity, save money and to pay off debts.