The word refinancing can really confuse a lot of normal people. This is because in reality, it does involve some complex banking concepts, terms and systems. However, in this article, we will try to simplify it as much as possible so that our readers can get a full understanding on the basic concepts of a home refinancing, including why you may or may not need to do it.

What is Home Loan Refinancing?

Home loan refinancing is basically taking a new loan from your original bank to pay off your original home loan. The bank then re-evaluated the current value of your house, which has no doubt appreciated.

Why should I take a new loan?

Banks usually offer to refinance your home for new loan that has a lower interest rate. In addition to that, you can also change from a flexible interest rates on your repayment to a fixed interest rate.
Additionally, taking a refinanced loan can also extend your loan repayment period. It will also allow you to have more money from the increased value of your house. In this increased value, a portion of the money will go to paying off your old loan whereas the remainder will either be returned to you or be invested by the bank and you can reap the benefits.

How do I go about getting a home loan?

The simple answer would be to talk to a professional bank officer for a thorough explanation. After that you will have to read the terms of the new loan agreement carefully before signing up.

Are there important things to consider before refinancing?

Yes, you will need to check the original bank loan you took and see what is the ‘lock in period’ or ‘early settlement penalty’ to know whether you are allowed to refinance your house. If you choose to refinance within the lock-in period, you will have to pay a small fee.

Are all home loan refinancing the same?

Not at all. Every bank has its own refinancing package. However, you are allowed to compare all their offers and make the best choice. You can also negotiate the best terms and conditions to suit your need, as long as they are within reason.

Are there any costs involved in refinancing?

Yes, usually the costs involved are in two categories. One is moving costs, which is the cost incurred whe you want to settle the original loan and make a new loan agreement. These involve things like stamping costs, legal fees and evaluator costs. These may come up to 2-3% of your refinancing value.

The second costs will be incurred if you choose to refinance during your original loan’s lock-in period, which will incur a penalty fee.