MAIN FEATURE
The public tends to look at offer rates and make decisions based on it. However, what is more important is the subsequent rate a borrower must pay for the duration of the loan” - Linnet Lee
people. You just need to know the right questions. When speaking to them, you need to ascertain the appropriate loan schemes which you are interested in. Ask different bank officers to work out the total amount payable in terms of the loan and interest rate for the entire duration of the proposed loan and the services they will provide in terms of ease of loan payment, early payment as well as penalties. “Compare the information with your existing loan before deciding. Most importantly, if the owner has not done his financial planning, he may find that this will impact his cash flow and he will not meet his repayments.”
WHAT CAN BE DONE TO AVOID REFINANCING MISTAKES: DEBUNKING THE MYTH THE HIDDEN COSTS OF REFINANCING: Perception:While it may seem logical, it would be easier and less expensive for your existing bank to refinance your home. After all, the bank would have your credit history, asset information (stocks, retirement and savings accounts, etc) and the current value of your property. It would therefore be assumed that they would also be willing to offer a better price simply because it is easier to keep a good customer than it is to find a new one. Reality:Not so says SMART Financing CEO Chua. 20 | JUNE 2017 www.propertyinsight.com.my
Instead he recommends speaking to a few bankers for consultation on their current financial details. This will give them a better understanding on their “loanability” status and given them the chance to shop around for better rates. “Rates are not everything. Look at the various mortgage packages out there as different banks offer different products. Finding a balance between the package which meets your needs and the rate which is worth the refinancing is crucial.” Perform a cost benefits analysis before deciding if it would be worth refinancing the existing loan. A hastily made decision based on what is written on paper would not be enough to the unwary who might find themselves paying more than they had bargained for. CONSIDERING PAYMENTS ONLY AND NOT MORTGAGE RATES: Perception:The lowest monthly payment is always the cheapest option in the long run. Reality:Interestingly, this is not always the case. If a borrower can comfortably afford a higher monthly payment, then choosing a shorterterm mortgage might earn them a lower mortgage rate in the long run. PAYING PENALTY FOR EXISTING LOANS Perception:Most borrowers tend to assume that there is no penalty for their existing loans.
Reality:A prepayment penalty is a fee that bankers could charge if a borrower pays off his their mortgage loan(s) early. It is therefore prudent to check if the prepayment penalty can be waived before refinancing with the bank. If not, carefully consider the costs of any prepayment penalty against the savings a person expects to gain from refinancing as paying a prepayment penalty will increase the time it will take to break even - even when considering the costs of refinancing and the expected monthly savings gained. OVERVALUED PROPERTY VALUE ESTIMATION Perception:Paper valuation of the refinanced property may not be indicative of its actual market value.