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How To Decide When To Refinance Or Reprice For Your Loans
Viewed by 2,951 Smart Towkays
There are many financial options available to you when you want to refinance or reprice your bank loans. You need to consider the pros and cons of each option before making a decision.
You should also be aware of the risks associated with refinancing your mortgage and how refinancing might affect your credit score. For example, if you are considering refinancing your loan but your credit score has declined over the years and is now below 620, then you may want to explore repricing it.
Difference Between The Two Options: Refinancing And Repricing
Although the two options sound similiar in terms of what they do, there are some differences that you need to know about.
The first difference is that refinancing is the process of switching to and setting up a new loan package from a different bank to replace an existing one. This is done in order to either get a lower loan interest rate or to free up cash flow by consolidating payments.
On the other hand, if you have a high interest rate on your current loan, then you can get a better deal by repricing (i.e. continuing with your current bank on loan).
The second difference is that refinancing requires you to pay off your old loan completely while repricing does not require you to pay anything towards your previous loan. This means that you will still owe money on your original loan even after you repriced it. However, this is usually not a problem because most lenders offer much lower interest with the repricing package.
The third difference is that refinancing allows you to use your equity as collateral for a new loan while repricing does not. In order to qualify for a new loan, you must show proof that you have enough equity in your home. If you don’t have any equity, then you won’t be able to borrow against it.
Refinancing vs. Repricing: Pros And Cons Of Each Option
• Lower interest rates
• Use existing equity as collateral
• Pay off old loan completely
• May increase monthly payments
• No prepayment penalties
• Can use existing equity as collateral
• New loan is based on current market situation
• Higher interest rates
• Monthly payments could go up
• Lenders may take longer to approve the loan
• Credit scores may decline
Importance Of Your Refinancing Goals
If you are considering refinancing, it’s important that you understand your current financial situation and what your goals are for the future especially these economic times.
Do you want to consolidate all your debts into one loan? Then refinancing is definitely the way to go.
Or maybe you just want to make sure that you have enough money saved up so that you can buy a house at a later date. In this case, refinancing is not going to help you achieve your goal.
However, if you want to improve your credit score, then refinancing is probably the best option for you.
In fact, refinancing is considered to be one of the best ways to rebuild your credit score.
When you refinance your loan, the lender will report your payment history to the respective bureau such as Credit Bureau Singapore (CBS).
This will allow them to see that you have been making regular payments on time and that you are responsible when it comes to paying back loans.
When you repay your loan according to its terms, you will also be helping the lender build their own records of repayment.
This will eventually lead to a higher credit score.
What Are The Different Types Of Mortgage Refinancing Options Available Today?
There are two main types of mortgage refinancing options available today.
1) Fixed Rate Mortgages
2) Adjustable Rate Mortgages
Fixed Rate Mortgages
A fixed rate mortgage is a type of loan where the interest rate remains constant throughout the life of the loan.
It is very common for people who are looking to purchase a property to choose a fixed rate package over an adjustable rate for a mortgage package.
Adjustable Rate Mortgages
Adjustable Rate Mortgages (ARMs) are mortgages that have an adjustable interest rate. The interest rate can change at a set interval, such as every six months or every year, and the change in the interest rate can be either up or down.
This is different from a fixed-rate mortgage, where the interest rate does not change for the life of the loan. ARMs are attractive because they allow borrowers to take advantage of lower rates when rates are low and higher rates when rates are high.
The key benefit of ARMs is flexibility.
The borrower can adjust their monthly payments based on what they need at that time. For example, if they get a raise or find a better paying job then they may want to increase their monthly payments to make sure that they pay off their loan faster and avoid any late fees.
Why Is A Fixed Rate Loan Better Than An Adjustable Rate Loan?
With an adjustable rate loan, the interest rate changes every month depending on the prevailing interest rates.
As a result, borrowers often find themselves having to pay more than they expected when buying a property.
On top of that, there is no guarantee that the interest rate will remain stable during the term of the loan. If the interest rate goes up, then the borrower has to pay more than what was originally agreed upon. On the other hand, if the interest rate drops, then the borrower ends up with less than what he/she initially paid for the loan.
If you are planning to buy a home within the next few years, then you should consider getting a fixed rate mortgage loan instead. You will know exactly how much you will have to pay each month, which makes it easier to budget for your expenses.
In addition, you will always know what your payment amount will be even if the interest rate hikes.
When Should You Refinance Your Loans?
Interest rates are always fluctuating, and in this era of low interest rates, it might be a good time to refinance.
Refinancing or repricing your loans is a decision that should not be taken lightly. The decision to refinance or reprice your loans is based on the current market rates and it will depend on how much you can save if you refinance.
You should only refinance if you can save money by doing so. It’s important to understand that refinancing is not free. There are upfront costs associated with cost of refinancing, including:
• Closing Costs – These include legal costs, valuation fees, title insurance, appraisal fees, etc.
• Loan Fees – This includes origination fees, discount points, etc.
• Taxes – If you move into a new house, you will likely have to pay taxes on the difference between the old and new value.
• Insurance – If you decide to refinance, you will most likely need to purchase new homeowners insurance.
• Down Payment – If you do not have enough cash saved up to cover the down payment, then you will probably need to borrow money from another source.
There are also risks involved with refinancing. Some lenders require that you have a minimum credit score before approving your application process. In addition, you must meet certain requirements such as being able to afford the new payment. For instance, refinancing within the loan's lock-in period will incur a 1.5% lock-in penalty on the outstanding loan.
It is best to consult with a financial advisor before making any decisions regarding refinancing or repricing your loans. They will help you determine whether refinancing is right for you.
What Are My Options For Repricing My Home Loans?
Repricing your home loans means changing the terms of your existing loans, including loan tenure.
The main benefits of repricing your loans are:
• Save money on closing costs
• Avoid paying additional costs
However, there are disadvantages to repricing your loans. Here are some things to keep in mind when deciding whether to refinance or repay your loans earlier:
• Repricing your loans may result in higher total interest charges due to fluctuation in the market over the life of the loan.
• Repricing your loans will increase your overall debt load.
• Repricing can affect your credit rating.
• Repriced loans usually carry a higher risk of default than original loans.
Generally, refinancing is more beneficial than re-pricing because it offers better interest rates. However, if you have a lot of equity in your home or want to sell your home soon then re-pricing may be the best option for you.
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Frequently Asked Questions
How do I know whether repricing option is right for me?
Before you make any major decisions about your finances, it is important to consider all of your options mentioned above. Once you have done this, you will be able to make an informed decision.
Can I get a lower rate if I am repaying my loans early?
Yes, but you will have to shop around for the lowest possible rate. The best way to find out what the current rates are is to explore with mortgage brokers or financial advisors.
Do I need to provide proof of income to apply for a home loan?
Not necessarily. However, you should still check your credit report to ensure that no errors exist.
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