Lending Solutions

There are many reasons to refinance your mortgage – most of which will revolve around improving your current financial situation.

• To achieve a lower interest rate. Reduce your repayments or pay your loan off sooner
• To change a variable interest rate into a fixed-rate or vice versa
• To lower your monthly payments. Allowing you to reduce your repayments and increase your loan term
• To use the equity in the house. The equity of the house refers to the value of the house less your loan balance. For instance, if your house was valued at $500,000 and your mortgage loan balance was $400,000, the equity that you have is $100,000. You can use that equity, refinance and increase your loan.
  • Equity can be used in several ways:
  • To renovate or upgrade your house
  • To repair or maintain certain parts of the property
  • For other personal, investment and business use
• To consolidate your debts. Since refinancing can help you borrow against the value of your house, you refinance all your existing debts – not just your mortgage. This will all depend on the equity in your house. If the equity can cover your credit cards, car loans, and even tax debt, you can pay them all off and be left with one loan repayment to manage. Typically, your monthly repayment will decrease.
• To access new features in your loan. Sometimes, other mortgage lenders provide better features like lower fees and more flexible payment terms.

Before you refinance, it is important to ask yourself the following questions:

Why am I refinancing? It’s important to ensure that if you refinance that you are better off. It might be that your current mortgage is the best type of loan for you.

Will you live in the property for a long time? If you have plans to sell the property in the near future, it does not make sense to refinance as you’ll need to take into account any upfront fees and ongoing costs associated with a refinance.

What is important to you? You need to consider what you are looking for – do you want a lower rate, better features, a fixed rate or better service?

What is the current interest rate? It only makes sense to refinance a mortgage if you will get a lower interest rate in return. Otherwise, you are better off staying with your current mortgage

Will there be penalties if you refinance? If your original mortgagee will charge a prepayment penalty, do not be too quick to skip refinancing. Sometimes, the penalty is nothing compared to the amount that you will save if you get the low-interest rate on the new loan. You should also consider the transaction fees that will be charged to shift your mortgage and any tax implications of this financial move.

The refinancing process will depend on who your lender is. To give you an idea, here are the general procedures when refinancing:

1. Make a list of the qualities that you want from the new loan. This can be low-interest rates, a longer payment term, fewer fees, etc.
2. Find the lender that can give you the closest mortgage according to your list. Take note that you can refinance with the same lender as the original loan. This is why you need to check with them first before you search elsewhere. The process is usually simpler and a lot faster if your current lender can accommodate your refinancing requirements. Feel free to set a meeting with them to discuss what you want out of the loan. Be thorough in asking about fees and charges.
3. Submit your application. This is usually similar to the original mortgage process wherein you will complete a form and submit it to the lender with updated documents (e.g. income changes, etc).
4. Go through a pre-approval. The new lender will check your application and initial documents to see if you qualify for the loan. They will check your credit report and make sure that you can pay off the loan you will borrow.
5. Standby for the valuation process. The new lender will assess your property to check its current value. If you have more than one property, you may be charged for the valuation of the others. Only the first property valuation is free.
6. Get the finance approval. Once everything is in order, you will receive your loan approval in writing. This is usually called the unconditional or formal finance approval. The loan documents will soon follow.
7. Inform the old lender. This is unnecessary if you will refinance with the same lender. If not, you need to let them know that you have plans to refinance with another company. This will give them time to prepare the information and requirements that the new lender will request.
8. Receive the loan documents. These are the legally binding documents that you need to review thoroughly and carefully before you sign. Make sure it is as close as the list that you drafted at the beginning of this process (to ensure that your targets are met). If there is anything that you do not understand or agree to, call the lender to clarify your queries.
9. Wait for the settlement to be completed. This is when the old loan will be settled and the new one established. The exchange of the titles and the registration of the mortgage over the property will also happen during this time.
10. Learn how to manage the new loan. Since this is a new loan with new terms, you have to learn the details to ensure that you will not miss on any payments or incur charges or penalties.

The cost to refinance will depend on whether you will apply with the same mortgage lender or with a new one. The state where the property is will also be a factor when calculating the cost. You need to ask the mortgage lender for the actual details but you can expect it to have the following fees:

• Application fee. This is for the new lender so they can process the loan application for the refinancing loan.
• Valuation fee. This is also paid to the new lender. Most of the time, the first valuation is free – but some lenders may charge this.
• Land registration fees. This is paid to the new lender for the transfer of the mortgage registration from the old lender to the new one.
• Discharge fee. This is paid to the current lender to prepare the documents required for the refinancing and as pay-out to the existing loan.
• Contract break cost. This is also known as the prepayment penalty. Not all home loans have this but you need to check your mortgage contract if you will be charged with this penalty.