4. REFINANCING

Refinancing is the term for changing from financial institution to another because it has better mortgage rates or simply to re-organize one’s debt. It should be done when there are still many years remaining in the debt term.

Debtors usually decide to refinance for one of 2 major reasons: to obtain more favorable rates and mortgage conditions or simply in order to re-organize the terms of the debt.

The first reason usually occurs in cases where better mortgage rates are available at another institution than the existing mortgage. This will save the debtor money in the long-term. Refinancing to re-organize one’s debt usually happens when a borrower is seeking a lower monthly mortgage installment and to be able to use the difference to spend.

Refinancing is advisable when a debtor wishes to save money in the long-term only. If it is possible to pay off the mortgage in not over 1 – 2 years, refinancing is not advisable.

The application procedure for refinancing is the same as an application request for a new mortgage both in documentation and practice.

Costs involved in refinancing are divided into 3 groups.

1. Expenses incurred with the former financial institution due to fines for withdrawal before the arranged term. The general arranged term is 3 years counting from the day that the mortgage is approved. Fine is about 2 – 3% of the mortgage value .
2. Expenses incurred from the new financial institution issuing the mortgage including fees for property value estimate, stable interest rate usage fee and fire insurance fee. If one has an original insurance policy, they can cancel it and have the benefit transferred from the former financial institution to the new financial institution as recipient.
3. Expenses incurred from the Land Registry Mortgage fee which is 1% of the value of the mortgage and stamp worth 0.05%.