THE FINANCE AGENCY
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Mortgage Refinance Guide
Refinancing your current home loans can be a difficult choice. Just because you see a better rate is available, it doesn’t necessarily mean you’ll end up saving money by switching. However, if you do it right, and at the right time, you could end up saving large sums!
Unsatisfied with your rates or seeking better customer service? You’re certainly not alone. There are always plenty of borrowers looking for a better deal. But while it might look like a good idea on a quick glance, refinancing needs to be considered carefully before going forward.
Despite the smaller number of players and number of mortgage products in the mortgage market, competition is still alive in Australia.
What To Consider First When Refinancing
When it DOES make Sense
- Your lender’s rate isn’t staying competitive with others in the market
- A major change occurs in your financial situation
- You are looking for more money to pay for home renovations, a child’s education costs, or invest in another property
- Switching to a fixed rate at an opportune time
- You’ve started to see large credit card debts and want to consolidate
When it might NOT make sense
- You might not own the property for much longer
- Prepayment penalties are high on exiting home loan
- Since your previous loan your credit history has taken a hit due to outstanding debts, making it less likely you’ll get a good rate
- You’ve got an uncertain income over the period of the loan, such as work as a freelancer
- Your loan balance is low and you’re not thinking of redrawing on available equity
Before refinancing, a borrower should consider their circumstances for usually over the next three years. You should ask yourself whether flexibility, a lower rate, lower fees or debt consolidation is the goal.
Just chasing a lower interest rate won’t be enough. You need to think about the entire life of the loan, not just the headline interest rate. Also think about the costs of changing to another lender.
Some of the most important things for borrowers to be aware of when considering refinancing include the impact of any fees that may be applied, such as entry, exit, application, valuation, stamp duty and legal fees, as well as any other ongoing charges.
It’s also worth talking to your existing lender when considering refinancing with another one. Some lenders might go to unexpected extreme lengths to keep you, such as waiving fees, rather than let you go to a competitor. That can be especially true if you’ve made all your payments on time and have been with that lender for a number of years already.
If you approach another lender, it’s important to always present the best financial picture of yourself to them. Make sure you’ve paid off as much of your other debts as possible and drop unnecessary credit cards.
Those who want to refinance but have been late in paying their bills and owe considerable amounts on a credit card might not be able to find a lender who is going to offer very good rates.
Wanting a lower interest rate and lower repayments is one of the more common reasons to refinance. Many borrowers have been frustrated that their lender increased their interest rate by more than what was set by the Reserve Bank of Australia, while other lenders have only passed on the set increase or even less.
Even a slight increase (or decrease) in your interest rate can make a major difference over a long-term loan. Others who are looking to refinance might just want to fix their repayment, especially if they sense rates have – or soon – will bottom out.
Another reason to refinance your home loan might be to consolidate your debts and only have one monthly repayment. If you have multiple debts from various sources or institutions such as a home loan, personal loan, credit card or other high interest loans, and you’re having trouble paying these off, then it could make sense to roll these debts together with your home loan. The main advantage here is that your home loan rate is typically a lower rate.
The key is to make sure you don’t lower your repayments once you’ve consolidated. The same is true if you manage to get lower interest rates on your variable home loan. The savings that this provides should be used to pay the loan off faster, so don’t be tempted to use this as spending cash.
As it can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. A professional Mortgage Broker can help guide you through this process.
4 Reasons why you should use a Mortgage Broker in 2016
The start of a new year is a great time to review your finances. Work may have slowed down just enough to give you a window of time to figure out what processes and practices you can improve upon.
Do you need advice on your home loan? Are you getting the best possible mortgage rates and terms? Do you have a mortgage plan customised to your needs? Are you using the equity in your property to its advantage?
Here are the top 4 reasons why a good broker can help get your new year off to a great start.
1. EXPERT ADVICE
Banks deal with all types of loans that only relate to their bank, whereas mortgage brokers are specialists in selling mortgage and mortgage related products from various lenders.
Whether you are a first home buyer, investor or re-financer, your mortgage broker has the knowledge to expertly guide you through the process. They stay up to date with new products, promotions and regulations and are a great source of information about all things home loan.
2. PERSONAL ATTENTION
There are many steps in the home loan process and a professional mortgage broker will help you through: taking care of the paperwork, managing the application process, assisting with settlement. They take the time to work one-on-one with you to evaluate your specific needs and find a lender that suits you personally.
3. SAVE MONEY
Mortgage brokers have access to a large network of lenders, which puts them in the driver’s seat when it comes to securing competitive rates and terms that fit your situation. They deliver advice on your financial options, and unlike banks they are not necessary restricted to choosing the products of one lender.
4. SAVE TIME
Often people avoid refinancing their loan because it takes so long to compare one lender to the next. Mortgage brokers can save you the leg work by showing you multiple lender product offerings at just one visit. The amount of time they can save in phone calls and emails to make sure your loan is set up properly and approved on-time is priceless.