Should you re-mortgage? Here are the pros and cons of refinancing.

Is re-mortgaging right for me?

A mortgage loan is by far the biggest financial commitment for most people around the world. Reducing a bit of that financial commitment can lead to serious savings on your monthly payments. A remortgage allows you to switch to a mortgage loan that is more attractive than your current mortgage loan. In this article we talk about when you should consider a remortgage on Curaçao, Aruba, St. Maarten of Bonaire and what advantages & disadvantages come along with it.

When should I consider a remortgage?

This is a question only you can answer, as your situation is unique to everyone else. Below we summarize 5 items why you should or should not consider a remortgage. If you want to learn more about each item, we elaborate on each topic later in this article.

Why should I re-mortgage?

1. You want a better interest rate
2. The value of your property has increased
3. You want to borrow more
4. You want to reduce your monthly payments
5. You believe the market interest rates will increase

Why shouldn't I re-mortgage?

1. Your current mortgage loan is too small
2. The value of your property has decreased
3. Your early repayment penalty is too large
4. Your financial situation is uncertain
5. You have bad credit history

What are the advantages and disadvantages of a remortgage?

When you do consider a remortgage, you need to balance out any benefits against the cost of remortgaging. The benefits need to outweigh the costs involved for remortgaging.

Benefits that you could face with a remortgage are:

1. The ability to borrow at a lower interest rate if you think you are paying too much interest costs on your current mortgage loan. Keep in mind that even a slight reduction in interest rates can make a noticeable difference to your budget;
2. The option of utilizing your property's equity for additional cash;
3. Reducing your monthly payments by switching to a mortgage loan that suits your financial situation.

Costs that you could face with a remortgage are:

1. A new lender may charge administrative fees;
2. You may have to pay for a new appraisal on your property;
3. There will be notary costs associated for transferring the mortgage deed to the new lender;
4. Depending on your current mortgage arrangements, your existing lender may also charge a fee if you repay your mortgage early. This is often called an ‘early redemption penalty’ and can make a remortgage a much less attractive option.

Consider a remortgage at Connect The Market

Connect The Market allows you to easily asses if a remortgage is something you need to consider. All of the abovementioned costs are taken into account and broken down in pieces for you, no surprises along the way. Since the usage of Connect The Marlket is free of charge, why not submit a simple application online and find out how much you can save over the term of your mortgage? You get the best deal on the island within 2 business days. Find out in one clear overview how much your savings are and based on that you can make an informative decision. You don't like what you see? No problem, don't take the deal, its free anyway, no strings attached.

Case study Curacao - when should I consider a remortgage?

Why should I re-mortgage?

1. You want a better interest rate
   Most lenders on Curaçao only provide mortgage loans based on annuity structure. This implies fixed monthly payments with a bigger proportion of interest expenses in early years moving to a bigger proportion on redemption in later years. A 50 basis-points reduction (0.50%) on your current interest rate could save you significant over the full term of your mortgage. For illustrative purposes; if your mortgage is ANG 300.000 with a term of 25 years at an interest rate of 5.50%, a remortgage at the same terms but with a reduction of the interest rate to 5.00% ends up with a saving of more than ANG 26.500 over the term of your mortgage loan, which equals a reduction in the monthly payment of almost ANG 90 per month. Please note; this is the gross amount, the interest costs is deductable from your taxable income on Curaçao.
   
   
2. The value of your property has increased
   The Loan-To-Value (LTV) ratio will considerably be lower; the relationship of your mortgage loan compared to the property's value is improved. Lender's risk is thereby mitigated that may trigger a lower interest rate on your mortgage loan.
   
   
3. You want to borrow more
   Utilizing your property's equity by remortgaging to a new lender might enable you to raise money cheaply on low rates. But remember to take all the fees into account to see if it really is cheaper than other forms of borrowing. The most commonly acceptable reasons to raise money are for home improvements and paying off other debts.
   
   
4. You want to reduce your monthly payments
   One way is to extend the term of the mortgage loan. Some lenders on Curaçao provide you the opportunity to payback the mortgage loan till the age of 70. Extending the payback period will trigger lower monthly payments. However, please note that the total interest costs over the extended term will be bigger.
   
   
5. You believe the market interest rates will increase
   Curaçao financial institutions normally use a 5-year period of fixed interest rate. After that period they are able to absorb any future interest increases into the mortgage terms. Rising interest rates will increase your borrowing costs.
   
   

Why shouldn't I re-mortgage?

1. Your current mortgage loan is too small
   Once your mortgage loan falls below a certain amount – around ANG 125.000 – it may not be worth switching to a different lender simply because it is unlikely that any savings can be realized. The smaller your mortgage, the worse the effect of any fees you need to pay. Quite often, you will be better remaining on the 'higher' interest rate.
   
   
2. The value of your property has decreased
   You may have had a 5% to 10% own contribution when you bought your home, borrowing the remaining of 95% to 90% of the property's value. But now, your house price has dropped and the amount you owe is a bigger proportion. In some cases, you may be in negative equity, where your debt is higher than the value of the property. The only thing you can do then is sit tight and wait for prices to go up again.
   
   
3. Your early repayment penalty is too large
   On Curaçao it is less likely that in your mortgage agreement a penalty is included on early repayments. However more and more lenders do intend to incorporate such a penalty in new agreements. If an early repayment penalty would cost too much to free yourself from your current deal, maybe you are better off staying at your current mortgage provider.
   
   
4. Your financial situation is uncertain
   In recent years many people’s financial circumstances went through a period of rapid change. Lenders will request salary slips, employment contract and recent bank statements if you are employed. When you own a business financial statements and financial forecast are requested by the lenders in order to assess the current financial situation. In the current situation it is possible that your financial position has altered since you took out your current mortgage. Meaning you may have to stay where you are.
   
   
5. You have bad credit history
   Lenders want to gain insight in all your other debt payments, and are looking for the Curaçao credit agency of repayment histories. Any red-flags there might cause lender's disinterest to finance.
   
   

Relevant Q&A

1. Do I need to deposit any amount to refinance my home loan?
   You generally do not need to pay a deposit when refinancing your home loan, but there are a range of fees you will probably face when you switch to a new lender. These costs can be capitalized in the mortgage loan, meaning you do not have to actually pay them out of your own pocket.
   
   
2. What Loan-To-Value is requested by Curaçao, Aruba, St. Maarten of Bonaire lenders when remortgaging?
   When it comes to refinancing, a general rule of thumb is to have 20% equity in the property's value. Meaning 80% of the market value of the property can
   be refinanced for. But this is also subject of the term of the loan and your income.
   
   
3. Is it expensive to refinance a mortgage?
   As outlined above, a remortgage can be costly, however, these costs can be capitalized in the new mortgage loan if you are refinancing to a loan with a lower interest rate. In case of a refinance to a new mortgage provider additional costs will be triggered, including: notary expenses for the transfer of the mortgage deed, closing fees at a new mortgage provider and potentially a termination fee at your current mortgage provider. Connect The Market gives you the option to give consent to contact your current mortgage lender to avoid most of these costs.
   
   
4. How much can refinancing save me?
   To work out what your monthly repayments might be and how much you could save by refinancing, you can use our mortgage calculator and submit an application request at Connect The Market and find it out within two business days.
   
   
5. How do I know if I should refinance my mortgage?
   As discussed in this article, you may want to refinance your mortgage for a range of reasons, including if you want to reduce your mortgage loan interest rate, if you are unsatisfied with your current lender, to consolidate debt, to fund a home renovation or extension, or to fund a big purchase (such as a car) at a lower interest rate.