Alison Mifsud, Head of Corporate Banking and Mortgages at MeDirect, explains why it is important to shop around for the best refinancing deal on a home loan – and save money!
Why would you encourage anyone who has a home loan to consider refinancing?
Refinancing is the process of switching your current home loan to more favourable terms. You can choose to stay with your current lender, or you may want to move to a different provider. The idea is to ‘shop around’ for the best refinancing deal you can get on your home loan to have an opportunity to save money. Many of us shop around for the best deal before committing to a large purchase like a holiday, or new car, so why not do the same for our home loan?
What are the main benefits of going through a refinancing?
Refinancing would be most beneficial when it is considered after a number of years from when you took out your initial home loan. Given that over the past decade, interest rates have reduced considerably, a new home loan agreement would secure a lower interest rate than you would have contracted into, say, five years ago.
Considering that a home loan repayment is one our biggest monthly expenditures, a lower interest rate will, in turn, reduce monthly repayments and this generally leads to substantial savings.
What happens if you are currently benefitting from a fixed-rate period?
The typical length of a fixed interest rate period on a home loan would be anything between two and five years. During this time, customers are generally benefitting from an advantageous rate and, therefore, it is unadvisable to consider refinancing.
When this period expires, your lender will automatically put your loan on the prevailing variable rate, which is typically higher than the fixed one and, therefore, possibly more expensive than other deals available on the market. At this stage, it may be the ideal time to start shopping around for a better deal.
What does LTV mean and why is it important?
The loan-to-value, or LTV, as it is sometimes referred to, is the size of your home loan in relation to the value of your property. It is important to note that the lower your LTV, the less risky it is for the lender to offer you a loan against your property.
Property prices in Malta have been on the increase, year on year, for the past decade, meaning that since you took out your original home loan, you may be in a lower loan-to-value band and the bank may, therefore, be in a position to offer a better interest rate.
When would refinancing a home loan not necessarily be a good idea?
Refinancing is a process that would require some effort and costs and, therefore, this might not be beneficial if a home loan is close to its maturity. Costs would normally relate to notarial fees, as a new agreement would need to be drawn up, and architect fees, as an updated valuation of the property is required.
Furthermore, if you are currently on a favourable fixed interest rate, you would need to check whether you would need to pay an early repayment fee on the existing loan upon refinancing.
Where does MeDirect come into it?
MeDirect aims to reduce the efforts and costs involved in a refinancing process. We set up one of the easiest processes on the island by enabling clients to submit all home loan documentation required online, thereby reducing the number of times you would need to physically visit the bank.
With regard to costs, we are not charging our customers any loan processing, booking, commitment, or legal fees, which are typically associated with a new home loan.
In addition, the bank is partially refunding costs related to notarial and/or architect fees and can improve interest rates subject to the LTV.
MeDirect’s qualified advisors are there to help you every step of the way. Its
team is flexible to set meetings in a digital environment and has the resources required to provide a faster-than-market response time.
For more information, call MeDirect on 2557 4400; or send an e-mail to MTMortgages@medirect.com.mt
MeDirect Bank [Malta] plc is licensed to undertake the business of banking in terms of the Banking Act [Cap. 371] and investment services under the Investment Services Act [Cap. 370].
MeDirect Bank [Malta] plc is regulated by the Malta Financial Services Authority as a Credit Institution under the Banking Act 1994. Applications are subject to the bank’s lending criteria. Terms and conditions apply and are available on request.