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If you are a homeowner in the Philippines, you may be considering getting additional funds by refinancing your home. However, before you take a refinancing step, there are a couple of things you need to know about home equity loans in the Philippines.
1. Changing interest rates
- If you are currently repaying a home loan and are looking to refinance to access additional money, you need to be certain that the local interest rates bolster your decision. If your original home loan began with a higher interest rate, you may benefit in the long-term by refinancing now, to take advantage of a lower interest rate and possibly lower monthly payments for the duration of your loan term. However, you may not desire to use your home for collateral if the interest rates are unsteady or are higher than your previous loan amount.
2. The cost to benefit ratio
- Notwithstanding regardless of whether or not the interest rates on the home equity loan are lower than your previous loan agreement, you need to understand the extra costs of refinancing a home loan. When you take out a homebuyers’ loan, your lender ought to make you mindful of the closing costs and any pre-payment penalties incorporated into the loan agreement.
A refinanced loan may have an improved interest rate and give you reduced monthly payments; however, the prepayment penalties and closing costs may mean that you need to take a larger loan to cover those costs, removing the benefits gained from the refinanced loan.
3. Property value
- The cost of the home you wish to refinance is subject to changes in the property market, and providers of home equity loans in the Philippines will give careful consideration to the appraisal price of your home before consenting to a refinancing loan.
For home equity loans, lenders will only refinance a maximum of 60% of the home appraisal amount. Considering the amount already repaid, you have to guarantee that the amount of equity on your home is greater than the amount you wish to access by refinancing – meaning, you need to know if your existing loan amount, with prepayment penalties and closing costs, exceeds 60% of your home’s current appraisal value.
4. Risk assessment
- If you are in the convenient position of not paying a homebuyers’ loan, but you need to access the equity in your home, you need to be aware that securing funds against it would put your home at risk if, at any point, you were unable to keep making repayments.
5. Amount of refinance
- Home equity loans in the Philippines are not reasonable for small amounts of refinancing; if you only need access to a low amount you would be better settling for an alternate kind of loan.
A home equity loan is a good finance option for accessing a large amount of funding for large projects, educational cost charges, or home rebuilding. However, you need to be aware of how home refinancing works, what the pitfalls are and how to arrange the procedure before you proceed.
