Posts Tagged ‘Modifications’
Loan modifications are a great way of taking advantage of favorable market forces, like the lowering of interest rates. Re-fixing your interest rate is, however, only one of many loan modifications you may wish to apply to your loan. Each lender will have its own set of available modifications, which may differ from one lender to the next. When initializing a loan, it is important that you familiarize yourself with the loan modifications available from your lender, even if they don’t presently apply, as future circumstances could prove them useful.
Here is a run down of the most commonly offered loan modifications and how they could apply to you.
Topping Up
If you need to borrow more money, for example for urgent home repairs or renovations or a car, check that your lender can offer a simple ‘top up’ to the current amount owed, without a change to your terms and conditions or interest rate.
Also be sure to check for any additional fees that may be incurred by this process.
Re-fixing on a Lower Interest Rate
If your loan is on a fixed interest rate, you may be able to alter the interest rate before the end of your term. There is usually a fee involved in re-fixing early, but if the calculations show it will significantly reduce your repayments, then it can be worth implementing. Ensure you are aware of the fee for this.
Losing the Low Equity Rate or Compulsory Mortgage Insurance
Low equity rates are usually associated with mortgages. Some banks will add an additional fraction of a % to the interest rate if the initial down payment or deposit is below a certain threshold percentage of the total home cost.
Others will insist on mortgage insurance. It is important to check that once the purchaser’s equity stake rises above the threshold, this additional % is removed or mortgage insurance becomes optional.
Early Repayments and Lump Sums
If you think you may someday be able to pay all or part of your loan off early, it is important to check that lump sum payments do not incur additional fees. There may be a limit as to what percentage of the loan may be repaid outside of the standard repayment schedule.
Loan and Mortgage Transfers
If a situation arises where you need to transfer your loan to another lender, check, if any, what fees apply. It may be that your new lender will cover these fees just to secure your business, but you may not be so fortunate, so be prepared to pay.
Moving to a Variable or Split Interest Rate Loan
If you are new to borrowing, you will probably find security and peace of mind in a fixed rate loan. As times change, you may find a variable interest rate or even a split interest rate (part fixed, part variable) more favourable. Check that your money lender offers both these options.