Benefits and tips for mortgage refinancing
As a general rule, customers tend to refinance their mortgages with another bank in order to save interest. Here are the tips to successfully refinance your mortgage loan:
For example, if a customer has applied for a mortgage loan at the then prevailing rate in 2014 at H+1.7 and by 2016, the prevailing rate has dropped to H+1.4. By refinancing that mortgage loan with another bank, the customer can saving interest at 0.3% per annum and this translates to $3000 for a $1 million mortgage loan per year.
Good credit score
Mortgage refinancing is the same as a new mortgage loan application. The applicant must have good credit score at the public credit data bureau in order to succeed. A good score is achieved by punctual repayment history of your current mortgage and absence of irregular or late payments.
Comprehensive Income Proof
A salary worker can produce his tax demand note, employment contract and bank account statements as comprehensive income proof. For a self employed person, he may have to produce documents showing his stream of income for up to six months as income proof. For small-to-medium enterprise owners, they may have to produce audited financial statements for the past two years as income proof.
Early prepayment without penalty
The applicant should check carefully whether the intended refinancing is outside the penalty period for early prepayment as banks normally impose an early prepayment penalty occurring within the first three years and 1-2% of the mortgage loan. This can be checked from the bank’s facility letter or directly with the bank staff.
Assuming an applicant has good credit score, comprehensive income proof and the intended refinancing is carried out outside the early prepayment penalty period, one should still assess whether property valuation and current LTV restrictions will work against your refinancing.For example, if the property was purchased at $6 million and has slightly appreciated in value with the original mortgage being granted in 2014 at 70% LTV, under the 2015 HKMA guidelines, the new LTV permissible for $6million property is below 60%. This means that the applicant has to use his own fund to make up the shortfall in LTV when repaying the original mortgage with the new mortgage granted at a lower interest rate but lower LTV.
More Stringent Mortgage Lending Guideline
An applicant should be aware of the more stringent mortgage lending guidelines imposed by HKMA in the calculation of debt servicing ratio, stress test application etc. applicable at the time he applies for mortgage refinancing. This may have adverse effect on the overall computation of such ratio in light of trend of the HKMA in tightening the mortgage lending criteria applicable to banks.
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