The home refinancing process may seem puzzling due to the apparent number of home loan refinancing choices available however if property owners take time to familiarise themselves with the home refinancing process and available home loan choices I am certain they will find the process is rather simple. In the below article I will draw attention to the core home loan refinancing choices to be considered along with some significant factors that should also be considered in order to determine whether refinancing your property is sensible or not.
Home Loan Refinancing Options to consider.
There are genuinely only a few significant loan choices for homeowners to decide on when considering the possibility of refinancing a home. These choices are the type of loan which is either Standard or Line of Credit and the type of interest rate which is either Variable or Fixed.
A Standard Loan is the usual type of home loan that calls for full repayment during the term of the loan and a Line of Credit is an advanced type of home loan that only needs repayments of interest within the loan term. Fixed and Variable rates are the two types of interest rates existing and furthermore there is what is recognized as a Hybrid Loan that is really a loan structure consisting of combos of the previously mentioned options.
A fixed interest rate will stay fixed or constant throughout the length of the fixed rate term. Fixed interest rate periods available generally vary between 1 - 15 yrs. A fixed rate is more desired in a soaring rate environment or when security of repayments is required.
A variable interest rate is one that can fluctuate during the term of the loan. The interest rate is generally tied to an index such as the RBA Cash Rate in Australia or the Prime Index in America and is subject to deviation in accordance with the index. A variable rate is more favoured in a falling interest rate environment or when homeloan versatility is desired.
A Hybrid Loan is only a home loan structure which can include an amalgamation of homeloan types and/or rates. An illustration may be a configuration where 50% of the loan is a standard type with a variable rate of interest and 50% is a standard type with a fixed rate. Then again the Hybrid structure may well consist of 3 portions with one being a Line of Credit.
After picking the Home Loan , consider the Closing Costs and Set-Up Costs.
The closing costs associated with refinancing a home should be cautiously considered prior to determining whether refinancing is an option. These costs are frequently ignored and at times can be quite substantial. Closing costs might contain charges like Early Repayment Fees, Break Costs, Deferred Administration Fees, Deferred Establishment Fees, Discharge Fees as well as Discharge Agent Costs.
Homeloan Tip: At all times check your Homeloan Contract for full disclosure of the closing costs.
Today, set-up costs requested by the finance provider are usually minimal but those connected with Mortgage Risk Insurance, Settlement Agents and Government Charges may at times add up to a considerable amount. It baffles me though, that property owners when refinancing a home, are once more subject to many of the identical expenses as when originally buying their house. These expenses might include application fees, property appraisal fees, loan origination fees, registration fees, settlement agent fees, stamp duty and mortgage risk insurance.
Homeloan Tip: Always have the finance provider or mortgage consultant make available a costing sheet containing full disclosure of set-up costs.
Evaluate the Overall Benefits together with the Savings
This is vitally significant because home refinancing is not considered sensible unless it results in a sizeable financial saving and/or benefits. Sometimes great benefit is to be had by homeowners strictly refinancing to lower repayments or accessing cash for lifestyle events and there is no principal concern with savings while others consider the value of refinancing lies within the savings.
Homeloan Tip: When determining whether or not to refinance, overall savings is important but it is only 1 factor that homeowners must consider.
The amount of savings the property owner will attain is mostly dependent on the differential between the old and new interest rates factored in with the period of time the home owner intends to hold on to the loan for. Its also significant to note that the quantity of money saved from the lower interest rate during the new term of the loan is not the true amount of the savings. For true savings the homeowner must take into account the closing costs, set-up costs and difference in interest to be paid over the new loan term as compared to the old loan term. A negative number would indicate that the interest rate saving of the new loan is insufficient to offset the home refinancing costs. On the other hand a positive number would show an overall saving.
Armed with this information a homeowner should be able to make an informed decision as to whether home loan refinancing is a sensible proposition or not.
