Refinancing can make sense as long as you find at least one of the reasons listed above. For some borrowers, especially from the initial years of the program, this can be a really cool solution. I have seen contracts that customers have signed with margins of 3%. They were lured by a surcharge, but unfortunately they did not see that the entire surcharge was eaten by a very high interest rate. 3% margin is really a cosmic level, because even now, when we are dealing with a market drought, you can make a loan with a margin of 1.7%. For a quick comparison:
Additionally, when refinancing a loan, you can think about extending the loan period. However, I recommend it only to people with real financial problems. The loan period is a very important parameter. This is the main determinant of the sum of interest to be paid to the bank. Extending the loan period only makes sense if it is actually needed. I described it in detail in the subject mortgage loan and loan term.
Can I refinance a loan and stop the payment?
Unfortunately, it is not possible to refinance an loan to another bank and keep the surcharges. Even if the bank to which you would like to transfer the loan also participated in the program. At the time of refinancing, you replace the loan with additional payments for a standard loan. Installments will be in the standard amount, without co-financing. However, such an operation can be profitable. The issue of making appropriate calculations.
Can refinancing a loan be unprofitable?
Loan refinancing can be done at any time. Cost-effectiveness should be calculated for each case individually. There is no one universal recipe for everyone. Something that is good for one borrower may be bad for another. The worst thing you can do is follow the opinions of others without calculating your own case. I understand that for many people mortgage and mathematics are not the most exciting issues in the world. At the same time, I know that wrong decisions are worked out much longer than spending a few or several hours analyzing your financial matters.
What are the costs of the refinancing loan?
Refinancing a loan does not involve any special costs. At least, that’s usually the case. This is not a loan secured by any special restrictions. During refinancing, it is worth paying attention to several potential costs that may be encountered in this situation. Mainly of them are:
1. Commission for early repayment
Most often it costs 2-3% of the remaining loan balance to be repaid. Usually occurs for the first 3-5 years of the loan period. Therefore, for most borrowers it will be or will be a problem of the past.
2. Commission for granting a refinancing loan
Refinancing loan offers usually have a 0% commission as standard. However, it may happen that there will be an offer with a super low margin and commission on the market. Such an operation can also be profitable, but you will only feel real benefits after some time. In each situation, you need to calculate the costs and assess the rationale for refinancing the loan in one form.
3. Property valuation
Each bank must make an estimate of the value of the property to be able to determine the level of collateral loan. The value of the property varies over time. Banks often offer a free quote for refinancing loans. However, sometimes you will have to bear the cost out of your own pocket. The cost of making a valuation for apartments is around USD 400, for houses around USD 700.
4. Land and mortgage fees
Changing the bank will require changes to the land and mortgage register. You will have to cross out the “old mortgage” which costs USD 100 and enter a new bank which costs USD 200.
5. Bridging insurance
Until you enter a new mortgage in the land and mortgage register and delete the “old mortgage”, your interest rate will be increased under bridging insurance. The most common rate is around 1p.p (1% colloquially).
Documents for refinancing the loan
Every mortgage is inherent in the need to provide precise documents. This will also be the case with the refinancing of the loan. The documentation does not differ from the standard refinancing loan. Together with the application you will need to submit:
1. identity card,
2. financial documents (depending on the title of income received),
3. real estate documents (basis for purchase of real estate),
4. loan agreement with schedule,
5. loan certificate.
Certificate for changing the bank
I would like to stop for a moment on the loan certificate, because it is a document that does not have one universal content. It happens that the issuing bank does not include all relevant data in it. The correct certificate for refinancing the loan should contain:
1. borrower’s personal data,
2. date of loan granting,
3. amount of capital remaining,
4. interest accrued from the date of the last repayment to the date of issue of the certificate,
5. early repayment commission,
6. technical account through which the existing loan is to be repaid,
7. declaration of issue of documents for mortgage release after loan repayment.
The above is the absolute minimum so that the refinancing bank has all the necessary information to carry out the transaction. When ordering the certificate, it is worth paying attention to the employee accepting the order on all of the above points. An employee in a branch does not necessarily have to know the specifics of the mortgage. So you don’t necessarily have to know the nuances of refinancing. For the sake of certainty, I suggest that all orders be ordered on paper and signed by the person who accepts the order.