Understanding the Differences Between Refinancing and Additional Borrowing

Comparing the Pros and Cons of Each Method to Determine the Best Mortgage Option

When it comes to managing home finances, the terms "refinancing" and "additional borrowing" are often mentioned. While both are related to property mortgages, there are significant differences between the two. In this article, we will further explain the distinctions between the two, helping you to better understand these concepts.

Firstly, "additional borrowing" refers to applying for another loan from the bank on top of the existing home loan, thereby increasing cash flow. For example, if your property is valued at HKD 5 million and you still owe HKD 2.5 million on your mortgage, you can apply for a loan of HKD 3 million (with a 30-year term) to increase liquidity. Note that the interest rate for additional borrowing may be higher than that of the first loan, so it is crucial to carefully calculate repayment ability to avoid being burdened with excessive financial obligations.

In contrast, "refinancing" refers to transferring the existing home loan to another bank to enjoy higher cash rebates. For instance, if your property is valued at HKD 5 million and you still owe HKD 1 million on your mortgage, you can consider transferring the loan to another bank to benefit from higher cash rebates. Note that refinancing incurs certain costs, such as legal fees, but once the transfer is successful, you can enjoy a certain amount of cash rebates.

Now, let us compare the pros and cons of these two loan methods. Firstly, additional borrowing can provide more cash flow to deal with emergency situations or other financial needs. However, the interest rate for additional borrowing is usually higher than that of the first loan, so it is necessary to carefully consider repayment ability. In contrast, refinancing can offer higher cash rebates, thus helping you gain greater benefits in the long run. However, refinancing incurs certain costs, including legal fees and transfer fees. Therefore, when considering refinancing, it is crucial to calculate the balance between costs and benefits.

Additionally, it is worth noting that banks may set different restrictions for additional borrowing and refinancing. For example, banks may only allow you to apply for additional borrowing once and not allow you to do so again afterwards. Similarly, banks may only allow you to refinance under certain conditions, such as a specific interest rate or within a specific loan term.

In conclusion, both refinancing and additional borrowing are important choices for managing home finances. When choosing between the two, it is crucial to carefully calculate the balance between costs and benefits and to follow the bank's restrictions and requirements. Only with a thorough understanding of these concepts can you make the wisest financial decision and make your financial situation more stable.