Many people are unaware that they have the option of switching their loan to other investor; others are simply uninterested. They simply become firm with their first lender but they don’t know that it could 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.
Current Interest Rate
If your latest interest rate is higher than other housing loan packages, 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
Lock-in period is when your lender give you a penalty if you want 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. Thus, it is not advisable for you to reinvest due to these extra costs.
Loan Quantum
The higher the amount of your loan, the greater your savings for the same decrease in interest rates will be. However, fixed cost to reinvesting, which comprises mainly of legal fees, does not vary much with loan quantum. The difference between your current and reinvesting interest rates has to be larger for a relatively smaller loan as fixed cost takes into a more considerable part of your interest rate savings.
Identify Interest Rate Movements
Your analysis on how interest rates are moving can be a factor when considering whether you should reinvest. Try a floating rate package as an alternative to fixed rate package if the interest rates are decreasing. Conversely, if you are on floating rates and believe interest rates are increasing, switching to fixed rates may be a good choice.
Own Financial Evaluation
Try to get a fixed rate package. Consider increasing your loan quantum. When your monthly income increased and you want to decrease interest payments, try to reduce your loan tenure.