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What does refinancing actually mean? It means:
replacing your existing mortgage with another, lower interest rate
loan. There are many good reasons to consider refinancing, including
lowering your repayments, shortening your loan term, taking advantage
of your home’s equity, debt consolidation, cash out options etc.
Mortgage refinancing can save you a lot of money if you do it right.
Overpaying on your mortgage, when refinancing, is a common mistake that
homeowners make, which costs them thousands of rands in interest.
Deciding if you should refinance or not depends greatly on what your
financial goals are.
If you are refinancing in order to pay less interest, you would not see
the savings right away. This is because financial institutions charge
fees when you take out a new mortgage, and in some cases you also have
to pay a penalty for canceling your old mortgage. To determine whether
refinancing makes financial sense for you, consider these issues:
The Loan Term
It will not make sense to refinance your mortgage and start over with a
20-year term should your existing mortgage almost be paid off.
The Interest Rate
A percentage drop of just one half to three quarters of a percentage
point can result into huge savings over the long term.
However, to get the benefits of a lower rate, you may have to pay fees
associated with the mortgage.
Refinancing Costs
Refinancing is a lot like getting a new mortgage. Your lender may
charge certain fees to facilitate your new loan. The benefits of
refinancing add up over time, so if you do not plan owning your home
for much longer, the lower payments associated with the refinancing may
not cover the costs involved.
As a rule of thumb, the longer you plan to stay in your home the more
sense it will make to consider refinancing. If your refinancing
expenses can be recovered within the first 24 months of the new loan,
mortgage refinancing is probably a good idea.
Pre payment penalties
Many mortgages carry a penalty if you pay them off early. If you do not
wish to pay such a fee you will have to give your financial institution
a 3 month / 90day notice period. Some however do not charge such a fee
and you should go through your original loan documents to make sure.
The break-even point
If you can determine your break-even point, then you can start figuring
out when you will start saving money. This involves a very simple
calculation.
Start of by calculating how much you will save by lowering your monthly
payment. Then add the costs associated with refinancing and divide the
total by your monthly savings. This will give you an indication of the
number of months it will take to reach the break-even point.
However to get a more accurate estimate, use our financial calculators.
What to do next
It is important to know your reasons for refinancing so that you can
decide if the changes will achieve your financial goal.
For more information see the following
money saving articles below
- Recognizing
a Bad Mortgage Loan
- How to
Afford a Mortgage Bond
- Debt-Free
Living
- Are
Debts Keeping You Up At Night?
- Good
Debt vs Bad Debt
- Budgeting
– It Has to be Done Otherwise You’re Sunk!
To apply for a refinancing quote you will have to
fill out a short application form. You will then receive a FREE quote
from well established, nationally recognized lenders. You do not need
to decide now whether refinancing the loan is for you.
Just apply and compare the repayments to your current situation. There
is no obligation on your part. If you decide that it is not for you,
you simply do not have to accept the offer. You have nothing to lose
and everything to gain.
Get me a Better Rate
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