Bizhack: 3 Terms You Need to Know for Property Loan (Refinancing, Top up, Repricing)
If you’re looking at a piece of land to build a house on or use it for business purposes, don’t expect a traditional mortgage lender to finance the purchase. You’re likely to have to apply for a property loan.
Property loans are not as common as mortgage loans, so there are fewer options. And you might have to face a higher down payment requirement, a higher interest rate, and less time to repay the loan than you would have with the mortgage.
If you’re applying for a property loan, it’s important to know what you’re getting into and how to reduce your costs.
Here are some of the terms you’re likely to encounter:
Repricing
The opportunity to recover is a change in the market environment that allows the value of an investment to be reassessed. This can happen with stocks, bonds, or other types of investment. The change that precipitates a recurring opportunity varies. Interest rate changes, for example, affect almost every type of asset and can create recurring opportunities in the banking and capital markets in particular.
Understanding Repricing Opportunities
Changes that give rise to a reprising opportunity may be company-specific, sector-specific, or market-wide. In some instances, the term reprising opportunity is used as a softer term to refer to situations where an asset has seen its fundamentals deteriorate.
Industry-Specific Repricing Opportunities
In the banking sector, recovery opportunities are periods when interest-rate-sensitive assets and liabilities are subject to adjustment. Banks earn interest income, so their income fluctuates with changes in interest rates. When they issue loans or sell deposit certificates, they include opportunities to re-enter contracts to allow for periodic adjustment. This helps to reduce the risks that the interest rate will rise or fall in a way that negatively affects the bank’s return.
A bank can minimize its interest-rate risk and maximize its net interest income by minimizing the differences between its assets, such as adjustable-rate mortgages, and its liabilities, such as the interest rate it pays on customer deposits or deposit certificates, whenever these periodic reprising opportunities arise on products.
Refinancing
Obtaining a new mortgage is called refinancing to replace the original. Refinancing is done to enable a borrower to obtain a better term and rate of interest. The first loan is paid off, which allows the development of the second loan, instead of just making a new mortgage and throwing out the first mortgage. Refinancing can be a good way for borrowers with a perfect credit history to convert a variable loan rate to a fixed one and get a lower interest rate. Refinancing can be risky for borrowers who have less than perfect, or even bad credit, or too much debt.
It can be difficult to make payments on home mortgages in any economic climate. Between possible high-interest rates and an unstable economy, making mortgage payments can be tougher than you’ve ever expected. If you find yourself in this situation, it might be time to consider refinancing. The danger of refinancing lies in ignorance; without the right knowledge, refinancing can actually hurt you, raising your interest rate rather than lowering it. Below you’ll find some of this basic knowledge written to help you get the best deal. For comparative purposes, here is a tariff table outlining the current rates in your area.
Top Up
A top-up loan is a facility provided by banks, housing finance companies, and other financial institutions that allow you to borrow a certain amount of money over and above your home loan.
Top-Up Loan Features:
Eligibility
A top-up loan is not available to anyone who has a bank home loan. Several factors are taken into account prior to the granting of the additional loan. Banks check the ability to repay and past track records in relation to the repayment of the previous home loan. If the credit report is favorable, the banks shall grant the additional loan by charging certain processing fees. In some cases, banks waive processing fees.
Tenure
Top-up loans are granted either for the outstanding period of the existing home loan or for a period of 10 years—term changes from bank to bank.
Interest Rates
The interest rates charged on top-up loans are slightly higher than what you pay for your home loans. This is very cheap compared to the personal loan interest rate.
Utilization
You can use a top-up loan for the purpose of modifying or constructing your home, or to meeting your personal expenses, such as child education, etc. However, you can not use the extra loan amount for speculative purposes.
