Common Pitfalls Of Refinancing Your Home In Hong Kong

Refinancing is a great way to get a better interest rate or terms on your mortgage. You might think that this is unnecessary since home loans have remarkably low-interest rates anyway – at least if you compare it with credit cards. However, if you want to maximize your money, you should look for ways to lower your interest rate so you can save money on the mortgage in the long run.

With all the benefits of a remortgage in your home loan, make sure that you approach it with caution. There are certain mistakes that you can easily fall into. You need to be aware of what they are because committing these mistakes might forfeit the benefits that you should be getting from refinancing.

Common mistakes when you refinance your house

To help you make a smart choice about your move to refinance your home loan, here are the pitfalls that you need to stay clear of.

Having a low credit score.

One of the reasons to refinance your house is to get a lower interest rate. This is one of the ways that you can lower the amount that you will pay towards your loan. However, this can only be done if you have a high credit score. Even if the mortgage rate is down when you refinance your mortgage, it is still better for you to have a good credit score. In order to do this, TransUnion advises consumers to pay attention to their payment history. This is the most important part of a credit score. You have to avoid late payments and you should manage your credit accounts well. A good score will not only convince lenders to give you a low-interest rate. This will also help you determine if you are responsible enough to take on this change in your mortgage.

Failing to compare rates.

In any credit transaction, it is very important to compare rates first. One bank may give a lower interest rate but they may charge you higher fees when it comes to the closing. If the administration fees are high, it might not be beneficial to refinance. There are a lot of banks offering to refinance so do your research.

Overestimating the value of your home.

Another mistake that you need to avoid is overestimating the value of your house. This is very important. Your refinancing will be based on the value of your house. You cannot borrow more than its value. In fact, you cannot even borrow the whole value of your property. Refinancing is all about borrowing a new mortgage to pay off the old home loan. You might not get enough to pay the balance that you have on your old loan. Do the math and make sure this will not end up costing you more in the long run.

Waiting for a lower rate.

Since the interest rate is a great reason to get rid of your financial difficulties, you want to make sure that you will get the lowest rate that you can. This is probably why some people opt to wait until the rate bottom out. This might cost you in the long run. Do not wait too much. You might miss out on a low rate already.

Forgetting about the closing costs and prepayment penalty.

Finally, you should always remember that refinancing will make you pay the closing cost again. This is especially true if you will refinance with a new lender. They need to go through the due diligence that will confirm that you own the house and there are no problems with it. You need to be prepared for this payment. Low-interest or better terms may be great but if it will cost you a lot of money on the closing costs, then it might not be worth it. Not only that, you have to consider the prepayment penalty associated with your old loan. There are lenders who will only charge you if you refinance within the first few years of the loan. If you got past that date, it might not be a problem anymore. Check the loan terms of your old mortgage to make sure.

Once you avoid these pitfalls, you can enjoy the maximum benefits of refinancing your home loan.

Common Pitfalls Of Refinancing Your Home In Hong Kong

Tips to make refinancing work for you

When you are trying to refinance your mortgage, make sure you follow these tips:

  • Understand the market. Start by understanding the housing market.

Concentrate on the values of the properties, rates, and fees that you will encounter. For instance, the Hong Kong Business published an article that revealed how the interest rate hike in the US will not really affect the rates of the Hong Kong housing market. This is good news especially since the HK rates are influenced by the US. If the rates will be affected, experts believe that it will not be too much. If this is true, then now may be a great time to refinance and enjoy better terms.

  • Calculate if the prepayment penalty will really cost you more.

Sometimes, the prepayment penalty is nothing compared to the interest that you will save. You should not be too quick to dismiss refinancing just because you have a prepayment penalty clause in your home loan. If you will be asked to pay HK$5,000 for the penalty, that should be okay if it means saving HK$50,000 on interest.

  • Ask about cash rebates or waiver of fees.

Take note that there are some mortgage lenders that offer these to compensate for the cost to refinance. Talk to the lender you are considering and ask if they have this program and if it can be offered to you as well. This might help you offset the closing costs of this financial transaction.

  • Use the extra cash to improve your financial position.

In case you have built a sizeable equity on your house, refinancing will help you some extra money. Make sure this money is used wisely. If there is no prepayment penalty on the new mortgage, you might want to use this to pay a huge part of your principal loan. Or you can invest this money so it can generate extra income. It can even be used to improve your house to increase the value of your property. If you want, you can also use it to pay off any high-interest debts that you may have.

Refinancing can really improve your financial position – if you know how to use it to your advantage.

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Abigail Wong is the Writer of The New Savvy.

She is a Singapore Management University 2nd year undergraduate specialising in Strategic Management. From Tampa, Florida, she possesses an International Baccalaureate diploma from C. Leon King High School, and previously held the position of Treasurer of the King High School Division of the French National Honour Society and the Science National Honour Society. Abigail is currently acting as President of the French Cultural Club for SMU International Connections, and as a Resident Advisor and Fire Warden for the SMU Residences at Prinsep.

Abigail is a Former Florida Science Olympiad Champion in chemical forensics and protein modelling, and former Health Occupation Student’s Association District Champion in clinical nursing.

In her free time, Abigail enjoys interacting and caring for animals. She has previously volunteered for the Humane Society of Tampa Bay as an Adoption Assistant.

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