Refinancing Your Home

History continues to prove that the longer you hold onto your property, the more money you will make, simply because there will always be value in tangible assets such as land or house. Therefore, real estate investment is arguable still the safest investment option with a steady capital appreciation.  

More importantly, an asset could be your lifesaver when you need a loan from the bank for emergency or investment use if you have a property under a mortgage for some years. You can actually make use of the property’s increased market value to apply for a new loan from banks. This process is called a mortgage refinancing.  

Under a mortgage refinancing, the new mortgage loan will be used to pay off the existing mortgage by using the property as collateral.

For example, you are serving an existing mortgage loan of 35 years for the amount of RM500,000, which has been paid down to RM200,000 in the past 15 years. Today, the property is valued at RM650,000, you can now use the property as collateral to apply for a new mortgage from another bank to settle the remaining RM200,000 loan amount from the previous mortgage, and obtain the cash-out amount of up to RM450,000.

The question is, what is the catch and trap? Below are the common mistake when refinancing and some costs involved during the process.

1. Beware of the prevailing lock-in period of the existing mortgage because it could lead to an unexpected exit penalty.
2. Good repayment record of the existing mortgage is an advantage in refinancing but it is not a guarantee of new loan approval. New loan approvals are a consideration of different aspects such as property conditions, location, market demand, and so on.
3. Not all property investments can be successful. Some people will overestimate the market value of the property and hope to get a much higher amount in refinancing. In some cases, the cost of refinancing may offset the balance after paying off the remaining loan amount of the last mortgage loan.

Mortgage refinancing is a service and product of banks and it involves legal procedures. In another word, there are some bills to pay before you can get some cash out from mortgage refinancing. Here are some of the costs of mortgage refinancing.

1. Bank processing fees
2. Stamp duty
3. Legal fees
4. Property valuation fees
5. Loan’s lock in period exit penalty
6. The new Mortgage Reducing Term Assurance or Mortgage Level Term Assurance

[Image source: Mortgage photo created by xb100]