A Basic Guide to Home Refinancing
Home refinancing is something that many homeowners do once they have purchased a house.
There are various reasons why people refinance their home but usually, it is to get access to a larger sum of money.
Before deciding to refinance your home, however, there are a few things that you need to know, i.e. what it is, how it works, what the requirements are, and how the overall process works.
Following is a simple guide to getting you started;
#1 - What does it mean to refinance your home?
Over the past few years, South African properties appreciated in value. This means that the house you own right now is worth more than what you paid for a few years ago.
When you refinance your home, you basically take out a loan against your own house.
This loan is based upon the current value of the house and not the value it was when you initially purchased it.
It allows you to free up a bit more money if you need it in case of an emergency, or for whatever other reason.
#2 - How does home refinancing work?
The main goal of home refinancing is to give you access to the equity of your home.
Equity is the difference in value between what you owe on an asset and the value of an asset.
If you owe R300 000 on your home loan, for instance, but your home is now worth R1 000 000 then there is a difference of R700 000 in value.
Home refinancing will allow you to gain access to that R700 000.
However, this does not mean that you will get it for free. You will need to pay it back to the lender, and with interest at that.
Related Reading: Things to Consider Before Accepting a 105% Home Loan
#3 - What are the basic home refinancing requirements?
Being a homeowner is not sufficient for qualifying for home refinancing. There are a few other things that you need to look at.
First, your current mortgage should be in good standing. This means that you shouldn't have defaulted on payments.
Second, you have to have a decent credit score. This will show the lender that you are responsible and financially able enough to pay back the amount.
Third, along with a decent credit score, comes a healthy debt-to-income ratio. You can't have more debt than the income that you earn.
Make sure that these factors are all taken into consideration before applying for home refinancing.
#4 - What is the application process?
The lender will first review your documents and do a background check. This is why the above requirements must be met.
Once this has been approved, the money will be made available to you. There might be an instance where you have to register for a second bond and in this case, it might take up to six weeks for you to access the money.
There might also be additional costs if you have to register for a second bond just like when you registered for your current mortgage.
Speak to your lender about this and get as much information as possible.
Related Reading: 5 Ways You Could Lose Your Home Besides Not Paying Your Bond
#5 - What are the benefits of having your home refinanced?
The main reason for home refinancing, as already stated, is to access the equity of your home.
Homeowners do this for many reasons like when they send their children to university, if they want to renovate their home or any other instance where they might need access to a large amount of money.
Homeowners might also need money urgently in the event of an emergency.
Refinancing your home for these reasons often makes sense because you might get a competitive interest rate from your lender.
Whatever your reason for wanting to refinance your home, however, do enough research to ensure that you are making the right decision.