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5 big benefits of refinancing
15 Jan 2021
Housing prices in Hong Kong have been skyrocketing for many years. This is bad for potential buyers but fantastic for homeowners looking to cash out on some of their investments early. Mortgage refinancing can still be a great idea with the right plan. Here are five benefits of refinancing:
1. Cash-out for more capital
The housing market has its ups and downs in the short term, but generally, home-buyers from a few years ago have seen a rise in their properties’ market value. With mortgage refinancing, the gain in property value can be realised in cash. As mortgage rates are generally lower than those of personal loans, homeowners can obtain sizable capital for investments with a much lower interest rate. This is one of the biggest motivations to refinance.
2. The cash rebate itself
While you may not need investment capital, some extra cash is always welcome. Some banks even offer up to 2% cash rebate on mortgage refinancing. That’s HK$70,000 for a HK$3.5m property, enough for a few monthly installments. However, banks often adjust the cash rebate according to the market demand. Homeowners should monitor the market closely if they want to have more cash rebate benefits.
3. A better interest rate
Competing banks often lead to competitive rates. The HIBOR (Hong Kong Interbank Offered Rate) and prime rate plans are the most popular mortgage plans in Hong Kong. Certain banks sometimes offer low fixed interest rate plans in order to help homeowners reduce their mortgage cost. This can lead to huge savings over time!
4. Cut costs on mortgage insurance
Insurance is mandatory when taking out a mortgage loan amounting to over 60% of the property value. Take the case of a HK$4m property owner who has taken out a loan of HK$2.8m (70% of property value). Say, the owner refinances the mortgage after the property’s worth has risen to HK$5m. The loan amount would then be under 60% of the total property value, giving the homeowner a pass from the mortgage insurance. If the owner surrenders the insurance in the first year, 40% of the mortgage premium will be refunded, which then goes down to 25% refunded in the second year and 15% refunded in the third year.
5. Reduce monthly payments
Mortgage refinancing may not just create some extra debt. A refinancing can result in a longer loan repayment period with the same loan amount, relieving the monthly burden of the owner. Do keep in mind, that a prolonged repayment plan may mean more interest paid over the course of the period.
Source: Planto
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