Things to Consider When Reinvesting Your Home
Many people are unaware that they have the option of switching their loan to other investor; others are simply uninterested. They tend to be loyal with their very first lender but they don’t know that such loyalty will bring higher interest rates. Because of increasing number of housing loans and amortization period, the interest can range from thousands to hundreds of thousands of money. Below are some considerations when reinvesting your home.
Latest Interest Rate
When your current interest rate is higher than available housing loan packages on the market, it is time for you to consider reinvesting. Go back to your current bank or financial institution and ask them to reprice your loan package. Most likely, your lender will give you an offer, which is better than your current one. Make a comparison between this offer and with offers from other lenders to see whether you should switch or stay put.
Lock-in and Clawback Periods
When you get a housing loan, there may be a lock-in period wherein your mortgage lender will charge you a penalty fee, maybe a percentage of your outstanding loan amount, if you were to fully repay your loan. Many housing loans have drawback period. This is when the lender will take back what they gave you when you get your housing loan. Lock-in period is different from clawback period. Because of this, reinvesting is not recommended.
Loan Quantum
The higher the amount of your loan, the greater your savings for the same decrease in interest rates will be. Yet fixed cost to reinvesting does not vary much with quantum loan. The difference between your latest and reinvesting interest rates has to be larger for a relatively smaller loan as fixed cost consumes into a more considerable part of your interest rate savings.
Identify Interest Rate Movements
Analyze how interest rates flow. If you are currently on a fixed rate package and believe interest rates are dropping, you may want to reinvest to a floating rate package. However, if you are on floating rates, try to switch in fixed rates if the interest rates are increasing.
Own Financial Evaluation
Give some thought to take fixed rate package. Think of increasing your loan quantum. When your monthly income increased and you want to decrease interest payments, try to reduce your loan tenure.
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