What to know about refinancing your home

More than ever, people are looking for ways to save money and one  of the most effective ways to ease your budget is by cutting one of your greatest monthly expenses: Your home loan instalment.

Home refinancing, is an optimal solution to release cash, reduce bond repayments and monthly expenditure as well as improve your financial position, if done correctly and for the right reasons.

If your primary goal is to decrease your monthly bond instalments and manage your finances more efficiently, refinancing your home is a viable option – particularly if you’ve owned your home for at least 3 years.

How does home refinancing work?

Property increases in value over time which means, if you’ve owned your home for a number of years, it’s probably worth more now than it was when you purchased it. That’s why, when you refinance your home, you’re securing a new mortgage for your property based on its current value, and not on the initial amount when you purchased it .

This gives you access to the equity which you can use to improve your standard of living or strengthen your current financial standing.

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What is Equity?

Equity is the difference in value between what you own on the asset and the value of said asset.  If you owe R500 000 on your home loan, but your home is worth R800 000, there’s a R300 000 difference in value. This is known as equity and through home refinancing, you can access this equity on the amount you’ve accumulated.  .

Why Refinance your Home?

Firstly, individuals who refinance their homes usually wish to reduce monthly costs and refinancing your home at a lower rate could translate into savings of several hundred or thousands of Rands.

Another reason for home refinancing is equity release. Some homeowners are happy to leave their equity untouched, or are lucky enough not to need it. Others, require access to the significant sum in order to settle debt, pay tuition fees and repairs, or for a variety of other important or pressing financial reasons. When you refinance your home, you’ll gain access to this equity at a competitive interest rate, which means that you’ll have the cash you need at an interest rate you can afford.

Lastly, individuals who find themselves in a tight spot financially often choose to refinance their homes in order to consolidate debt. This allows you to combine debt into one lump sum and repay it at a more affordable interest rate than they’re currently paying..