Refinance – Is refinancing a home good? One of the questions that are often encountered when it comes to homeowners, home here means a residence, such as a house or condo that we borrow money from the bank to buy. After we have been paying off the house or condo for a while, we, who have borrowed the home loan, will start to wonder whether we should refinance the house or not?
Refinance – What is home refinancing?
Applying for a loan (or borrowing money) from a new bank to use the loan to close the loan (or original loan) of our old bank. After that, we pay off our house with the new bank instead.
To make it easy to understand, for example, we bought this house for 3.5 million baht, which of course we did not buy with cash. Therefore, we need to borrow money or apply for a loan from Bank A to buy this house. In this case, if it is the first house, we will be able to borrow 100%. After we have paid for a while and more than 3 years, we refinance this house by applying for a loan from Bank B to close the remaining outstanding loan of Bank A (moving from paying for the house through Bank A to Bank B).
The reason why most homeowners prefer to refinance their homes is because when the loan contract with the original bank ends, for example after paying off the home loan for more than 3-5 years, there will be new banks that often offer good promotions, such as low interest rates to attract homeowners to refinance with much lower interest rates than the original bank. In addition, they will also receive better repayment terms than before. Therefore, refinancing a home
Why does refinancing a home take 3-5 years?
Because when we buy a new house or refinance a house to move banks, the bank will have a contract binding us that we must stay with them for about 3-5 years (depending on the contract and offer of each bank). For example, one bank gives us a special fixed interest rate for the first 3 years, such as 2%, and in the 4th and 5th years, it may be a bit higher, such as 3% and 4% respectively. But after the 5th year onwards, it will be the normal interest rate, etc. Many people pay off their house until they forget that they have passed the deadline for receiving the special interest rate, causing them to pay off their house at a very high interest rate. The result is the interest burden that is too high when compared to the price of the house we bought.
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What are the benefits of refinancing your home?
“Help reduce home loan interest rates to be lower than before.”
The advantage of refinancing your home is that it will help reduce your home loan interest burden. This is because when the home loan interest rate of the new bank is lower than the old bank, the result is that the amount of interest we have to pay per month and the total interest will be reduced as well. This will help our monthly home loan payments to be deducted from the remaining principal more.
“Help us pay off our house faster.”
When refinancing a home reduces the interest on the loan, the remaining money from the home installments can be used to reduce the principal more. If the principal is reduced a lot, our home debt will be paid off faster. For example, instead of having to pay the home installments for another 27 years, if we refinance the home, it will be left with only 21-22 years, etc. And if we refinance the home again after the contract period has expired, our home debt will be paid off faster as well.
As you can see, the main advantage of refinancing your home is that it will help you pay off your home faster. If you pay the same installments but pay less interest, the principal will decrease faster. But in another case, for some people who have been paying off their home for a while and have financial problems, such as not being able to pay off the home with the same amount, they can use the option of “refinancing their home” to request a reduction in the monthly installments, which will extend the repayment period.
What to prepare if you want to refinance your home
- Check the terms and conditions of the original loan contract from our original bank first to see if it is close to expiring or has already passed the due date in the binding conditions. This is to prevent fines or other expenses that may occur from moving to a new bank. Normally, if you really want to refinance your home, it would be better to wait until the due date.
- Find information by comparing the terms and conditions of home refinancing from various banks. The main things to consider are: The interest rate throughout the loan period must be lower than the original interest rate of our original bank. The lower the new bank, the better.
- Prepare documents. This step is considered complicated, which many people give up and do not want to refinance their home. The main things required are: Personal information documents of the borrower, such as a copy of the ID card, a copy of the house registration, or other relevant documents; Documents showing the collateral used for refinancing, such as a copy of the collateral ownership, such as a land title deed or a certificate of ownership of a condominium; a copy of the original bank loan contract; a copy of the latest loan receipt; and a brief map of the collateral location. In addition, you must prepare documents showing the borrower’s income, such as a pay slip or a certificate of employment; and a statement of account for the past 6 months. (Don’t worry, each bank will clearly state what documents they require. We just prepare what they require and that’s it.)
- Once the documents have been submitted, the new bank will send an officer to assess the value of our collateral for approval. Once approved by the new bank that we have chosen, the bank officer will inform us to contact the original bank to inquire about the remaining debt and set a redemption date.
- The costs associated with home refinancing are as follows: appraisal fee (may or may not be charged depending on the promotion), mortgage registration fee paid to the Land Department at 1% of the loan amount, stamp duty at 0.05% of the amount (not exceeding 10,000 baht), fire insurance (normally required every 1-3 years by law), and other bank fees.
An alternative for those who do not want to refinance their home is to request a reduction in interest rates from the original bank.
If we do not want to refinance our home for whatever reason (which is mostly due to document preparation or income source issues, such as some people who have just changed jobs, there may be problems with the borrower’s income documents), we also have another option, which is to request a special interest rate from the original bank where we are paying installments.
Generally, the original bank will reduce it, but it also depends on the borrower’s payment history. The reason the bank gives this option is to retain existing customers. But even if the interest rate is reduced, it will definitely not be equal to the home refinancing interest rates that we get from other banks. So, it’s up to us to decide which way we choose.
As an alternative before deciding to refinance your home, try contacting the original bank where you are paying for a special interest rate to consider first. At least you will have many options for your own benefit.
Conclusion
In summary, refinancing a home will help us get a lower interest rate on the loan, which will increase the proportion of the principal in the home loan payment, helping to reduce our loan debt. The more disciplined we are in paying off every installment on time, plus the reduced interest costs from refinancing, the faster we can pay off the home loan and use less money compared to just paying off the loan without refinancing at all.
Reference:
Krungsri Bank Home Refinancing Information
