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SEPTEMBER 19, 2014
R
EFINANCE
is a frequently used term.
However, few are aware of what it
entails and the reasons why smart
investors and savvy home owners
actually refinance their properties.
In simple terms, refinancing is explained as
the process of renegotiating one’s mortgage.
The concept of refinancing is interpreted as
taking advantage of one’s property’s rising
value to obtain a larger home loan/financing
amount. It is also described as one’s
refinanced home loan paying off for the
current home loan. In both cases, the owner
is free to use the “balance/difference gained”
as he or she wishes.
WHY REFINANCE
Without needing to thinkmuch, one good
reason to refinance would obviously be to
take advantage (and grow richer, slowly) of
better or lower interest rates to either build
on savings or to use the cash, if needed.
However, there are other reasons one should
consider refinancing.
* For amore stable/secure rate
If inflation is reported to set in, in the near
future, it is advisable to ditch your current
floating or flexi-rate loans and go for the
more stable, fixed (yet still attractive) rate
mortgages. These offer the stability of
regular monthly payments over a given
length of time or term. This way it is easier
to budget finances and there is no risk to take
on the rate.
* To lower payment/installment
Amajor reasonmany choose to refinance is
to receive and/or savemoney. When one
refinances a property, depending on the rate
and terms, one can end up paying a smaller
monthly installment. The additional cash one
receives at hand can be used to invest, save to
gain interest or put into one’s pockets to use if
andwhen the need arises.
* To lower interest rate
For those who have a good, clean
installment repayment recordwith their
financial institution, they have the benefit
of negotiating for a better rate on, perhaps
a second property. Monies saved can be
used for other investments, saved or spent
as one wishes.
* To shorten the loan tenure
By shortening your loan term, you reduce
your interest rate, loan term, or both. This
way, you can save by paying off your
existingmortgage in a lump sumand include
the new closing costs in a newmortgage
amount based on better terms.
* To cash out home equity
If property prices are soaring, youmaywant
to consider a CashOut Refinance. It is
accommodate one’s changing needs
(terms and conditions apply). With
HomeSmart Reserve, you are able to
get additional loan secured against your
existing property. Use this additional
loan for anything eg. child’s education,
home renovation, a relaxing vacation,
a long awaited business venture or
investment opportunity.
HomeSmart Advantage is catered to those
who have finished servicing their home loan/
home financing of a property and the
property is nowunencumbered. You can
secure a loan against the unencumbered
propertywithHomeSmart Advantage. Use
this home loan to turn the unencumbered
worth of your home into cash and in turn use
it for making home improvements or for any
other expenses.
[Information retrieved fromHSBCwebsite and
online sources]
DID YOU KNOW?
• A home equity loan is a separate loan on top of your first mortgage.
• A cash-out refinance is a replacement of your first mortgage.
• The interest rates on a cash-out refinancing are usually, but not always, lower than the
interest rate on a home equity loan.
• You pay closing costs when you refinance your mortgage.
• Generally, you don’t pay closing costs for a home equity loan.
• Closing costs can amount to hundreds or thousands of dollars.
• “Rate-and-term” refinancing occurs when a better note rate, better loan terms, or both
become available to an owner which restructures their debt portfolio as it relates to
liens held against a subject property.
• Consolidatingmultiple loans into one loanwithout extracting cash is also a
rate-and-term.
• Loan-to-value limits, and other factors in loan approval determine howmuch cash can
be taken out from the equity of any one property.
(Information retrieved fromonline sources)
VITAL INFORMATION
Amemowas issued by BankNegaraMalaysia advising that the
Base Ratewill replace
the Base Lending Rate (BLR), as themain reference rate for new retail floating rate
loans
. The Base Rate will be determined by the financial institutions’ benchmark cost of
funds and the Statutory Reserve Requirements (SRR). Other components of loan pricing
such as borrower credit risk, liquidity risk premium, operating costs and profit marginwill
be reflected in a spread above the Base Rate. Under this cost-plus structure, spreads will
always be positive and not possible for financial institutions to offer lending rates below
the reference rate. Financial institutions will be given the flexibility to determine their
respective benchmark rates.
The
Base Ratewill be used for new retail floating rate loans and the refinancing
of existing loans extended from Jan 2, 2015 onwards
. After the effective date, BLR-
based loans prior to 2015 will continue to be referenced against the BLR. However, when a
financial institutionmakes any adjustments to the Base Rate, a corresponding adjustment
to the BLRwill also bemade. As such, financial institutions will be required to display both
their Base Rate and BLR at all branches andwebsites.
This shift to the new framework is said to have no impact on effective lending rates
charged to retail borrowers which are determined by various factors including a financial
institution’s assessment of a borrower’s credit standing, market funding rates and
competitive considerations.
However, another memo issued in July 2013 announced the implementation of financing
tenure: Maximum tenure of
35 years for financing granted for the purchase of
residential and non-residential properties
. This measure was aimed at avoiding
excessive household indebtedness and to reinforce responsible lending practices by key
credit providers.
explained as a replacement of your first
mortgage. Briefly, it allows you to turn the
equity you have built up in your home into
cash that you can use for a variety of
purposes, including further investment.
WHEN AND HOW TO REFINANCE
Timing is important when it comes to
refinancing amortgage. Unless you have
no alternative and urgently need to use
the cash, it is wiser to refinance after
consideringmarket conditions. This is
because interest rate fluctuations can
make a huge difference in the amount of
money you can save/receive in return.
To refinance your loanwithHSBC,
call in, email or visit in person to discuss
details. There are also a number of mortgage
tools and calculators to assist youwith
rough estimates such as loan amount
eligibility, repayments/installments,
lump sum figures/costs and howmuch
you can save by refinancing etcetera.
HSBC’s HomeSmart programmes have
been designed to provide flexibility. It can
UOA
Group recently celebrated the grand
launch of Nexus, an exciting and new
integrated lifestyle centre located at Bangsar
South. Featuring amodern space of more than
300,000 sq ft across five floors, Nexus boasts
a social hub that will soon be, if not already,
buzzing and the talk of the town.
Apart from the food haven it is, with the
many F&B outlets offering cuisine from Italy,
Spain, Japan, China, Thailand, Korea, along
withwestern and local fare, retail, health and
leisure options are aplenty.
It is an ideal place for social events and
gatherings. There are even beauty salons,
manicure and pedicure studios and hair
dressing salons, along with a home décor
store and education centres that offer child
enrichment programmes. A fitness club and
fertility centre cater to the health-conscious
set while on the topmost level, Nexus is
further complemented by Connexion
@
Nexus, the first fully-integrated F&B and
banqueting facility in the city.
The recent launch included an interesting
line-up of events. It started off with a 4.3km
charitywalk in themorning which raised
RM60,000 for three underprivileged
children’s charities. This was followed by a
lion dance performance, a dance fiesta, a
ukelele group performance and fun-filled
activities for the kids.
The charitywalkwas jointly organised by
Nexus, in collaborationwith Capri by Fraser
Hotel Residences and InvitoHotel Suites. For
more information, log on toUOAGroup’s
official website.
Newcontemporary lifestylecentre
Home
loans
>Refinancing…tips, tricks and traps
PART3
