Most of the time, people refinance their homes when they need to settle their debts, business capital, house renovation, children’s education, and many more reasons.
And one of the questions people always ask- Is now a good time to Refinance Your Home?
Well. It’s totally subjective.
Before you make any move to refinance your home, you must ask yourself why you need to refinance your home?
Is there any other way other than refinancing?
By the end of the day, refinancing is a loan, and a loan is never a good thing.
And if your answer is Yes, I need refinancing, or Yes, I need to take a loan.
On that note, Refinance your home loan is much better than taking a personal loan or even taking a loan from an illegal money launderer.
The reason is simple.
PERSONAL LOAN VS REFINANCE HOME LOAN
Personal loan interest rates are always marketed as lower than home loan interest rates but do you know that personal loan interest rates are based on a flat rate, and home loan interest rates are based on an effective rate.
Flat rate interest calculation throughout the tenure will be based on the original loan amount, while effective rates calculation based on reducing balance.
Let assume your original loan is RM200,000, and you are taking a 20 years tenure.
The interest calculation for the flat rate is based on RM200,000 throughout the whole 20 years tenure.
If this is an effective rate, during the 20 years tenure, the loan will be reduced year by year, and if by 10 years, it has reduced to RM100,000, the interest calculation will be based on RM100,000 and not RM200,000 as per flat rate calculation.
And that, ladies and gentlemen, the difference between flat rate and effective rate.
If you asked me, Is Now A Good Time To Refinance Your Home?
I will say, Yes. Definitely.
Let me explain why.
THE LOWEST HOME LOAN INTEREST RATES IN A DECADE
Banks are now are offering the lowest interest rates in a decade or even two decades.
If some of you might remember, the bank used to offer interest rates up to 7-8% per annum. Before that, we had a financial crisis where the interest rates shoot up like crazy to more than 10% per annum.
But all this is now in the past.
Our Financial system had work wonders when the government realized increasing interest rates is not a good strategy anymore; instead, they have lower down the interest rates to boost economic activities.
As we speak or write this, the home loan interest rates are as low as 2.90%-3.20% (floating rates). And that, my friend, is lower than the government home loan, which offers 4% per annum.
Call these crazy times? Yes, it is.
So, it is a good time to grab and use it to your own advantage.
THE EXISTENCE OF DEBT CONSOLIDATION LOAN
If I was not mistaken, Debt Consolidation Loan had first introduced three years ago. And at that time, only one or two banks are offering such a product.
Now, Debt Consolidation Loan is promoted by at least four to five banks, which is a good thing.
Debt Consolidation Loan helps people by consolidating their high-interest rates and shorter tenure debts to a new Refinance Home Loan.
The new Refinance Home Loan will be at lower interest rates and a longer repayment period loan.
And with this, they not only have a lower repayment, but they have a second chance to rebuild their financial portfolio.
And everyone deserves a second chance.
Under Debt Consolidation Loan, it will exclude the consolidated loan commitments when the bank calculates the loan’s borrower eligibility. And this will helps the borrower a lot.
Most people home loan was rejected because when it comes to income vs. commitments, the commitments triumph over income. And that is not a good thing.
With Debt Consolidation Loan, you don’t need to worry about it because the consolidated loan will not calculate as part of the commitments.
However, the bank does have a strict policy towards the conduct of the commitments. And any more than 2 months’ arrears in your loan will be a big no to the bank.
FINANCE ENTRY COST & ZERO MOVING COST
Two decades ago, banks did not OFFER Finance entry cost and Zero moving cost packages. And if you want to apply for a home loan, all the costs will be totally borne by the borrower.
But now, we are living in an amazing era where we have a lot of things.
And in the Mortgage industry, that means we have Finance entry cost and Zero moving cost packages.
Finance entry cost is when the bank allows the borrower to finance their loan legal fees, stamp duty, disbursement fees, and valuation fees with their home loan.
While, Zero moving cost is when the bank will pay on behalf of the borrower for all the costs involved like loan legal fees, stamp duty, disbursement fees, and valuation fees with their home loan.
However, certain banks might have capped on paying on a certain percentage only, and if the cost exceeded the percentage, the borrower might need to pay the balance.
Most banks are offering Finance entry costs, and not many banks are offering Zero moving costs.
The interest rates offered by Finance entry cost usually is lower than the Zero Moving cost. Even though the Zero Moving Cost is tempting, many people still prefer to go with Finance entry costs because of the cheaper interest rates.