Too much loan? You may not know that the cost of mortgage, or home loans, can be reduced over the life of a loan through refinancing. By refinancing, interest rates, term, monthly payment are often reduced, just like applying for a new mortgage.

While it might not seem logical to cover your previous loan with a new loan, it can in fact help you manage your current mortgage efficiently, in other words, more cash in your pocket.

To refinance your mortgage, you will need to consider from a few aspects.

Interest rates and savings from home loans.

Monthly interest rates fluctuate all the time. We often deprive time to consider, especially when the purchase was made when rates were high. Therefore, you can apply those savings from lower monthly interest rates. You can spend them toward your principal balance instead. It helps you pay off your loan sooner.

Refinancing can help you reduce total interest costs. Even if market interest rates remain relatively consistent, you may want to consider switching to a bank which provides you more appealing rates. Because of the compounding impact and the long-term nature of most mortgages, even a little adjustment in interest can result in significant savings.

Equity of the property.

If the price of the property has increased in recent years, you can use the difference between its initial worth and its higher current value to retrieve money out of it.

Moreover, refinancing a property with a higher price means having a loan with a proportion of the previous price. This means cash back up to 20 percent of the total home loan. If your financial status has improved, you can shorten the duration of the loan to secure equity faster.

Change of mortgage term.

During bad times, refinancing may be able to help you on your loan before your position worsens, resulting in high debt and damaged credit. Thus, you can modify to a more manageable monthly instalment by extending the term of your loan.

Also, if you borrow a larger sum for a longer period of time, your overall interest payments will almost certainly rise. The same applies even at a lower interest rate than your previous loan.

Multiple debts to combine.

Combine multiple loans and credit card bills by refinancing. Based on the kinds of loans you’re combining, refinancing may be able to offer you reduced interest rates. Refinancing personal loans, credit card payments, and even a second home mortgage, for instance, could result in significant interest savings.

When not to refinance:

• Require fast cash out; Refinancing would take longer time periods than personal loans.

• Require large cash out amounts; as in 2013, Bank Negara Malaysia has imposed a tenure limit for cash-out refinancing.

• Early periods in your loan with less built-up equity ; With less equity, the cash obtained is not sufficient to pay for other costs required for refinancing.

The old way to find a good deal on refinancing mortgages was to look around and compare. Now, for faster and easier access to the best rates in Malaysia, check out LoanPanda for Mortgage Refinancing Comparison.

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