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Refinancing your home simply means swapping your current home loan for another one. This is usually done to acquire better interest terms and rates.
Here are other popular reasons why people would consider refinancing their homes; perhaps you'll see yourself in one of the following scenarios!
Why do people refinance their homes?
Some homeowners may want to use alternate payment methods offered by their new lender, such as a different payment schedule or payment flexibility.
Bank sometimes package their refinancing schemes directed at targeted needs, provide lower interest rates or offer cashbacks. After signing up, approval can take as fast as 10 minutes!
Here are the top reasons why some homeowners opt to refinance their home loan:
- Lower mortgage interest rates
- An intention to keep their home for an extended period (as opposed to viewing their home as a short term investment)
- A desire to earn cash backs for home improvements, or to finance their children's education
- To start a new business with the extra savings and cash
- To consolidate debts
- To reap potential tax benefits
Is refinancing your home suitable for you?
If you’re in a tough spot financially, refinancing your home loan could be a logical option. Let’s take a closer look at some of the benefits of refinancing your home.
1) Home improvement projects
Apart from saving money, you may also stand to get a cashback after refinancing your loan. Investing in home renovation with the extra cash is a strategic move for the savvy homeowner, since this can increase the market value of the home.
There are many low-cost ways to modifying one’s home. Here are some things you can do to improve the price of your property without burning a hole in your wallet:
- Perform a complete clean-up to making the property more attractive to renters. Throw out old furniture, garbage, and get rid of pests and odours
- Apply fresh coats of paint to brighten up the home
- Replace old, dewy bathroom tiles and sinks
- Knock down walls and create a new room, door, or window to creating the illusion of extra space
- Add a wall to block out undesirable views from rooms or balconies
- Replace countertops and old built-in ovens in the kitchen
- Replace old cabinets in the bathroom and kitchen
2) Financing of education
It’s not uncommon for some homeowners to channel the extra cash into pursuing a degree, or training courses.
Through enhanced credentials, they get to improve their career prospects, potentially commanding a higher salary later on.
On the other hand, many baby boomers also choose to refinance their homes to fund their children's education locally or overseas.
3) Starting a business
A friend or family member may have business ventures you’re interested in, and you’re considering using your home equity to get the business off the ground.
This allows you to have instant cash in a short period of time, but remember to invest it wisely!
4) Consolidating debts
There are some who’ve unfortunately collected large debts from high interest credit cards after spending some time in the workforce.
Due to a lack of financial planning, many young people find themselves in such a sticky situation during their early working years.
For those who own homes, some may decide to pay off their credit card debts and perform debt consolidation, all via refinancing their home.
While this may not be a wise move, home loans still bring with them lower interest rates compared to credit cards.
Refinancing your home can be a gamble to some homeowners. If you’re still confused, explore your options, consult banks, and do a lot of research online.
If you wish to learn more about refinancing your home, take a look at this article.