What You Want to Know about Refinancing
Everyone knows of someone who has refinanced their home, for one of many different reasons. But what exactly is refinancing, why do people refinance their homes and should you consider it? Here is a look at the ins and outs of refinancing and what it is all about.
What is Refinancing?
Simply put refinancing is the process of switching your existing mortgage to a new agreement, either with your current service provider or to a different one. This does not mean that you are moving to a new property, the new mortgage will still be secured against your current home. If you have owned a property for a certain amount of time, the chances are that the value of this property has increased – meaning that it is worth more now than what it did when you purchased it. By refinancing your property, you will be securing a new mortgage against its current value and not the original amount.
Why Refinance?
There are many reasons why homeowners refinance their homes, some of these reasons include:
Reducing Costs
Individuals who refinance their homes mainly want to decrease their monthly overheads. If you refinance your home at a lower rate it is possible to save thousands of Rands yearly, and even more over the lifespan of the loan.
Accessible Equity
If your property value has increased and you decide to refinance, you could gain access to equity at an interest rate. Equity is the difference between what your asset is worth and the amount still owed on that asset. Say you still owe R1m on your loan and the property is worth R1.5m – that R500 000 difference is the equity that you could access through refinancing. Individuals then use this equity to improve their living conditions, better their financial standing and pay other expenses.
Consolidate Liability
Many people also refinance their home when they experience financial constraints, in an attempt to consolidate their debt. The consolidation of debt allows homeowners to put all of their debt into one amount – which they repay at a more reasonable rate.
Should You Refinance?
Deciding to refinance your property can be a complicated procedure and there are several things to consider before you make the leap.
How Long Will You Stay?
It does not make sense to refinance your home if you plan to sell or move the property before you reach your break-even point. The longer you stay after this point the more money you can save on your repayments, however, if you leave before the month you break-even – refinancing is not a viable financial option for you.
When Will You Break- Even?
Determining when you will break-even should be a serious consideration before you make a decision to refinance. You must identify how long it will take you to settle the loan. In order to gauge your break-even, you will first have to estimate how much you will save monthly by refinancing your home. Next work out how much it will cost every month. Divide the total amount by the monthly savings and that will give you the number of months it will take.
What Do You Qualify For?
Interest rates play a huge role in refinancing your home. It is important that you determine what interest rate you qualify for so that you can decide whether or not it is worth refinancing. Research these rates by getting quotes from various service providers.
Whether you want to consolidate your debt, access equity or just save some money – refinancing might be the thing for you. However be wary of the costs involved and conduct proper research to decide if it is the best thing for you. Hermanus Property Sales boasts years of in-depth knowledge of every step of the home owning process. Contact us today for quality property service or to view a future home in Hermanus.