Refinancing home loans
Mortgage refinancing is a common way of tapping into the equity you’ve built up in your existing property. The equity in your home is the difference between the property value and what you owe on your mortgage.
Refinancing can be an excellent way to achieve your financial goals if something has changed in your life or if you're unhappy with your existing lender. But it's not a straightforward process and there's lots of things you should consider before refinancing.
How does refinancing work?
Refinancing is simply the process by which you replace an existing loan or loans into a new loan. Refinancing isn't always about switching banks, you can refinance to consolidate other debts into your loan with your existing lender. Borrowers refinance for a number of reasons; a better interest rate, debt consolidation and accessing equity are among the most popular.
What you need to know when you refinance.
Equity is important - When shopping around for a better home loan it's important to know how much equity you have in your existing property. Some lenders won't refinance a new loan unless you have a certain level of equity in your property.
You can split your loan - Sometimes borrowers who have variable interest rates refinance their home loans to be split into fixed rate and variable rate portions. This can be a highly effective strategy for managing the risk of interest rate movements.
There are costs involved - Depending on your existing loan type and lender you may have to pay some costs to get out of your existing loan. Products such as fixed interest rate loans can have heavy fees to exit them. There can also be establishment fees for your new loan, so make sure you're aware of all the costs involved before switching.
A Cost-Benefit Analysis is important - This is the single most important step in the refinancing process and one you need the assistance of a mortgage broker for - does the cost of exiting your existing loan and establishing your new loan offset the savings of your new loan?
Negotiation is important - If your Loan-to-Value (LVR) is below a certain level, lenders will compete heavily for your business. Other factors that can help you achieve further discounts are high loan sizes and the purpose of the loan. A mortgage broker knows the lenders most willing to negotiate with these borrowers.
Refinancing makes renovation easy - Lenders look favourably on borrowers whose purpose of refinancing is to renovate your existing home or property investment. This is because you are adding value to your property.
It's not always about lowering your repayments - Often times you can lower your loan repayments by refinancing but it can be a good strategy to keep paying your home loan off at the same rate you're accustomed to so that you pay off more principle faster.
A Mortgage Broker will make sure you're choosing a product that will put you in a better financial position.
A mortgage broker won't just sit down and show you the lowest interest rates; a mortgage broker will take the time to understand your financial goals and existing debts and then match your needs to competitive and suitable loan products.
A mortgage broker will run a Cost-Benefit-Analysis for you, to determine if its worthwhile for you to switch loans - this will show you the exact figures involved in the process. A mortgage broker will also negotiate between several lenders, including your current one, to get your a lower interest rate or fees reduced.
- Refinancing is a great way to reduce your repayments, consolidate debts or release equity in your home
- the amount of equity you have in your home is an important aspect of a refinancing application.
- A Cost-Benefit Analysis from a mortgage broker will show you the true costs and savings involved in refinancing.
- You refinance from a variable rate to a lower fixed rate or create a split loan
- Be careful of the costs of discharging your existing loan and the establishment costs of a new one
- Speak with a mortgage broker who can give you help, show you the loans most suited towards your financial goals and negotiate a better deal.