Many borrowers make the mistake of assuming that they’re locked into a sub par home loan agreement, but refinancing with another lender offers an alternative.
In a nutshell, the term refinancing is used to describe the process of paying out a current home loan via taking out a new loan. While this can be with the same lender, it’s more common for borrowers to change to a different lending institute as a means to access a better interest rate, lower fees or more favourable loan terms as a whole.
What To Consider Before Refinancing
When done well, refinancing offers a wide range of potential benefits to borrowers, such as securing a more favourable interest rate, changing loan terms to fixed or variable interest rates, gaining access to home equity, consolidating existing debt, and even unlocking certain home loan features like offset accounts.
However, before you make the swap, it’s important to remember that refinancing isn’t free. Depending on the value of your existing home loan, expect to be hit with extra charges linked to application fees, valuation fees, discharge fees and more. If your current mortgage is on a fixed interest rate, there are also additional exit fees to contend with, and can easily amount to a few thousand dollars.
As such, before you dive into a new home loan, it’s worth considering all of your options and paying careful attention to certain factors that may dictate whether making the swap is a good idea or not.
Your Credit Score – In simple terms, your credit score or credit rating is a number that summarises your entire financial history. If your credit score has taken a beating in the last few years or you obtained your existing home loan quite a while ago, any changes to your credit score can widely influence your ability to both get a loan, and how much interest you’ll pay.
Current Property Value – Your property’s market value will influence how much equity you have in your home, or the difference between the value of your property and how much you owe on it. If you’re refinancing to access your equity or more funding, a lower loan to value ratio will put you in a good position to avoid paying Lenders Mortgage Insurance again on a new property.
Interest Rate Outlook – Given that we’re currently living in a time where interest rates have never been so low, it’s no wonder that many homeowners are looking at refinancing purely to access these, particularly before they are predicted to rise next year. However, you might be better off haggling for a new rate with your current lender to avoid exit fees as a Plan B.
New Loan Terms – Be wary that while refinancing to a longer term can reduce your regular repayment amount, the total cost of the loan will be more thanks to interest accruing. In contrast, refinancing to a shorter term has the opposite effect. While you’re increasing your regular repayment amount, you’re also saving on the total interest payable.
Debt Consolidation – Do you have a car loan or personal loan on top of your existing mortgage? One of the most appealing factors of refinancing is that it offers homeowners the opportunity to roll these debts all into one tidy loan package, and can aim to reduce the amount of interest paid on them each month.
If you’re weighing up whether refinancing is the right path for you or not, it’s worth speaking to the professionals first. Not only are mortgage brokers highly specialised gurus who know the ins and outs of loan products, but they can also help to guide you on what the options are for your own individual set of circumstances – but where do you find one?
Finding Help To Navigate The World Of Home Loans
The big attraction of buying your own home is just that – it’s yours, once you’ve paid back the banks of course. Apart from having somewhere to live, the quest for home ownership is also about having a long term investment strategy. If we’re looking at it from the viewpoint of decades instead of months, generally house prices do rise, and so does the value of your investment.
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
Credit Representative 499652 is authorised under Australian Credit License 389328.
