As a homeowner, you should be proud of yourself for achieving this huge milestone in life. Your home can be one of your greatest assets that keeps giving, especially if they have appreciated in value since you bought it.
On top of being a place to stay or a source of passive income, you don’t have to feel that your money is tied down by your property. If you’re going through a significant life change or reaching a new milestone, you might want to consider refinancing your home loan to better suit your financial capabilities and goals.
What is Refinancing?
Refinancing your home loan is essentially taking out a new loan with better features, to cover your current loan. While this may sound funny, refinancing your home loan can free up your cash to capitalise on rare opportunities, or help you manage your mortgage and financial needs.
Here are 4 reasons why you should refinance your home loan:
1. Save on interest
This is one of the biggest benefits of a refinancing loan. If you’re on a floating rate loan, which saw low interest throughout the Covid-19 pandemic, you might refinancing to a fixed rate loan now that interest rates are steadily growing. Or perhaps you bought your house when the rates were high, refinancing your home with a lower interest rate, you can reduce your interest cost now and throughout your home loan tenure.
Even if the market interest rates are stable, you can also refinance your home loan to switch to a different lender that offers a better and more attractive rate. Just a tiny change in interest rates can help you save thousands down the road, due to its compounding nature of interests and the long tenure of home loans.
2. Change monthly repayments
Understandably, there are ups and downs in life which may affect your financial stability and affordability. If you find yourself paying your home loan late or defaulting on your payments because you barely have enough to cover your current commitments, you should consider refinancing your home to avoid getting a bad credit score. Refinancing your home loan can help to lower your monthly repayments and commitment, which can help you manage your finances better, or provide you with more money for other necessities. With the money from refinancing, you can also consolidate and pay off your other debts (e.g., credit card debts, bills, car loans), which can improve your credit score.
Credit scores are like your resume where financial institutions will evaluate you, and determine if you’re eligible for future loans or better rates. That’s why it’s extremely important to maintain a good credit score so you can save on interest costs for future loans.
Or perhaps you’re doing really well and you want to pay off your home loan faster, so you can be free of commitment and reduce your interest costs. You can refinance your home loan to change your loan tenure and/or your loan interest rate, which would change your monthly repayments to help you finish paying off your loan faster.
3. Cash out to finance your business/ kid’s education
If your property’s value has increased significantly after you bought it, you can leverage the difference between your home’s original value and its current market price for your benefit.
For example, if you originally bought your house for $500,000 but it’s now valued at $600,000. You still have $300,000 unpaid on your home loan. However, if you were to refinance your home loan, and borrow a new loan giving you 80% of your house’s current value, you could technically free up $180,000*.
The most immediate benefit of this is that you can get financing if you’re cash-strapped, expecting your cost of living to increase (e.g., having a baby, sending your kids overseas for education), or to finance your business. And at a much lower interest rate too, as compared to if you get a personal loan.
4. Pay off your loan faster
When you refinance your loan, you can choose a loan that offers better interest rates or a shorter tenure to pay off your loan faster. A lower interest rate can reduce the total amount you need to pay off your home loan, as mentioned above. Coupled with a shorter loan tenure can help you save on interest costs, and help you pay off your home loan faster through higher repayment each month.
As we go through different stages of life, there will always be various domains of our lives taking most of our financial resources such as, getting married, expanding your family, sending your children overseas. During these times, our affordability and priorities might change, and it’s perfectly fine to adjust our commitments accordingly. That’s why it’s important to review your commitments, especially your home loans from time to time, to get the most out of your hard earned money.
Read more on the Common Questions Asked about Home Loans here. Or score a great home loan with attractive interest rates for your refinancing with our panel banks.
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