One of the tools of competition for the borrower on the Russian mortgage market can be regarded as a modern banking products – loans refinancing. A lower interest rate on mortgage loan refinancing program is an effective means of attracting new customers, so many Russian banks run programs refinance loans.
What does the term “refinance loan”? Let’s try to explain it in simple language, understandable to the uninitiated layman. To implement the refinancing loan the borrower goes to a new bank that fully repays his mortgage arrears already taken at another bank, by transferring the amount of principal and interest on the loan at a current date. After this deposit (acquired housing) re-registered on the new bank with which the borrower is calculated at more favorable interest rates for him. Mortgage loans are characterized by a significant amount of the loan and long term lending, debt restructuring, so the borrower’s mortgage to bring him a substantial savings.
It would seem that the benefits of refinancing is obvious, but people do not hurry to restructure their loans at more favorable rates. One major reason is the ignorance and lack of financial literacy: many people either do not know of the existence of such a bank product, or have no idea how the refinancing into practice. Some people, though, and heard about such a service, but do not dare go again complicated procedure of registration of a mortgage loan, including registration of the mortgage, the payment of commissions and fees, re-insurance, etc. In addition, the use of this loan product will bring real financial benefits only if the difference in interest rates is not less than 2-3%. Otherwise, the refinancing will not be effective because the borrower except for material costs will spend a lot of time and effort for the passage of the procedure. Learn more about apply for a loan online!
Another reason for which the borrowers do not use the service refinance loan is that the development of mortgage lending, and as a result of this – the decline in interest rates occurred in the past two years. Thus, the re-issuance of credit on more favorable terms is interested only a small proportion of the population – those borrowers who have borrowed funds from banks for housing 3-5 years ago, at a time when interest rates were quite high. Therefore, a new banking product can be called a stepping stone for the future.
Another factor hindering the development of programs of refinancing loans is the problem of unsecured period, which is that because of the lengthy process of re-registration of collateral, the bank has to lend to new borrowers without collateral. In this regard, bankers hedge their risks by raising interest rates at the time of re-mortgage. For this reason, is a rigorous selection of borrowers, which, according to the bank, it is possible for some time without the fear of future collateral trust. The problem of unsecured period significantly reduces the number of potential customers.
Another limiting factor that prevents the growth of popularity of the programs of refinancing loans – is the lack of reliable information about the credit history of a potential client. Due to the fact that the credit bureau to date are unable to give such information to a new bank to be content with the information that the borrower brings the first bank in which the mortgage has been discharged. For a complete check of the borrower’s reputation is not enough.
Thus, even today there are many obstacles to mass use of the current banking product, as refinancing loans. However, bankers are in no hurry to close the program for restructuring the loans of other banks. According to the forecasts in the near future volumes of loans granted for housing rise sharply: they will grow annually at least twice. Fierce competition in the banking credit products will contribute to the constant emergence of new competitive bids and promotion services for refinancing loans. Eventually, over time, borrowers will be able to appreciate the benefits of using this loan product, after a few years ago the word “mortgage” was for the Russian population in the same “terrible” and is not familiar, as “refinancing” today.
