Mortgage refinancing is not a common practice in Pakistan, since the majority of general public does not know what it is and how it can facilitate them. Rising inflation in Pakistan has made it impossible for a middle class man to buy property in some decent area of Pakistan. Several of those who buy their dream Pakistan property through mortgages often find it foreclosing by banks because of their inability to pay mortgage instalments. Who is to be blamed for that – cruel banks or rising inflation?
The fact is banks in Pakistan lend a helping hand to only those who are eligible enough to buy Pakistan Property but don’t have enough savings to buy it in one go. If at any point in time you are unable to pay your monthly obligations on time, it’s better for you to inform the bank about your financial position so that it may help you to get back on your loan track. If there is nothing you can do to save your home from foreclosing, you must seek help from mortgage refinancing.
Mortgage Refinancing in Pakistan – Reasons!
Mortgage refinancing is a practice in which buyer of loan replaces his current debt obligation with another debt obligation either with the same or different lender on his discretion. Buyer deducts the value of equity raised by him in the property from the total value of loan and refinance rest of the amount. More equity and less finance help him get low interest rate on mortgage refinancing.
Though the majority of buyers of Lahore and Islamabad property who are familiar with the general concept of mortgage refinancing in Pakistan use it to avoid foreclosures but they also go for it for several other reasons which are discussed below.
To Hunt Better Mortgage Rates – Many buyers in Pakistan secure mortgages without correcting their credit profiles. Banks however, don’t say no to such buyers but lend mortgages at higher rates of interest. The higher interest rates show banks consider lending to these buyers risky. If at any time during the term of the loan, credit score of buyer increases, he goes for mortgage refinancing and thus gets a lower rate of interest. Lowe rate helps buyers to build equity in house faster.
To Revise the Terms of Loan – Since inflation in Pakistan is making it difficult for people to make both ends meet, it is becoming hard for buyers to bear rising family expenses. Paying large amount monthly as mortgage instalment becomes unaffordable for them. During this situation, they refinance their mortgages and increase the term of the loan. Increasing the term of loan reduces their monthly instalments to a good extent. Similarly those who become financially strong and want to get rid of their loan early, refinance their mortgages to increase their monthly instalments.
To Secure Fixed Rate Mortgages – Some buyers initially secure adjustable rate mortgages, the rates for which vary with the interest rate in the market. They secure adjustable rate mortgages when they believe the rate of interest is going to decrease in future. But what if interest rate increases? Their monthly payments increase drastically. Since no buyer ever is satisfied with high payments, he goes for refinancing his mortgage. Buyers switch to fixed rate mortgages which require steady interest rates and monthly payments. This gives them a shield against the increasing interest rate in the market.
Besides that, freeing up built in equity in the property in Pakistan, not dealing with the same lender any longer and revising terms and conditions of current loan also make prominent reasons for mortgage refinancing in Pakistan.