IS IT TIME TO REFINANCE MY HOME LOAN?
You may have been very happy with your current lender for many years – especially with interest rates so low. However, you may finally need to think about refinancing to improve your financial situation. This is especially important if you are thinking of fixing your loan for a period of time. A new lender can save you thousands each year due to better interest rates.
Why Would I Consider Refinancing My Home Loan?
The possible benefits that you expect to receive from refinancing can make the effort worthwhile. After all, this is your biggest expense each month. You can also make other significant changes to your circumstances. If you refinance your mortgage, you may get the following advantages:
- Interest rates and costs can be much lower
- If you want to get cash out for a new kitchen, other investments, for a new car etc; then this is a good time to look for a better deal
- Reduce your expenses by reducing your mortgage payments
- Get a fixed rate to ensure you can budget for your known repayments
- Other debts can be consolidated to get you one overall loan payment
Once you’ve worked out what you want to achieve, it’ll be much easier to ask the right questions and get the most suitable loan for you. Knowing what you want to achieve gives you a good starting point to ask the questions that will be most relevant when comparing your current situation with what a refinance would offer you.
What Should I Look At When Considering My Current Financial Situation?
First things first is you need to ensure your financial situation is in order prior to changing lenders for your home loan. Put yourself into a lender’s shoes and think of what they may want to know about you. Once your broker has helped you to review your financial situation, this will give you greater clarity to ensure you would even be successful to change lenders or get more funds out.
It will also be important to check on the current value of your property. In broking terms this is what we call the LVR (Loan to Value Ratio). Lenders will typically lend up to 80% of the value of your house more easily. In relation to the LVR, up to 80% LVR is considered safer to any lender.
There are situations where you can borrow more than 80% LVR for a refinance, but there are likely more costs and less benefits to change lenders. You may have to pay Lenders Mortgage Insurance (LMI) if your LVR is greater than 80%. This can be added to your loan, with it only ensuring the lender is protected. The amount of the LMI you pay would depend on the size of your loan and the eventual LVR amount. There are generally maximum limits of 90% LVR for a refinance.
So What Are Your Options?
To find out what sort of refinancing options are available to you, you would have to look at many different products and lenders for you, taking into account your situation and your goals. Your broker can point out and also calculate the potential benefits in changing to another lender. You would then be sure to know if (for example) a better interest rate really can save you a good amount of money.
There are some costs to refinancing including government charges to release, and then re-register your mortgage with a new lender. This is usually around $300 in total. Your existing lending will charge you a leaving fee (called a discharge fee) which is usually around $375. There may also be other application fees with your new lender. Many lenders now offer a refinance rebate between $2,000 to $4,000 to cover these costs and also to offer a little monetary reward to make the switch. You may also choose to pay a further rate lock fee to ensure you get any fixed rate on offer.
Consider the things that you like or don’t like about your current loan to help you identify things that may be important to you. It can also be very convenient to re-structure your lending by changing lenders. For example, Interest Only (IO) periods go for a set number of years with your current lender. You can commence a new IO term when you refinance if that suits your situation.
Which Lender Should You Choose?
You have a few different ways to compare your lender options when refinancing your home loan.
1. Direct Researching Yourself
This method takes a lot of time and energy on your behalf. You also may have difficulty breaking down the differences and understanding each lender’s various approaches to your potential refinance. This can cause confusion and frustration which could lead to you making a decision that is not the best outcome for you.
2. Check Comparison Websites
If you do your research online, you’ll likely come across tables which compare different lenders side by side showing the different features and costs. However, the information you come across may not be incorrect and out of date, and at times the information being biased towards one lender over another.
The problem here is the information you will see is based upon those lenders who have chosen to pay for advertising and it doesn’t give a true scope of the lenders that may be better suited to you.
3. Book A Meeting With Your Broker
This will be priceless, as your broker will do all the hard work for you, finding you the lender who best suits your given lifestyle and financial situation. Your broker will act in your best interest to identify the most beneficial options for you. This takes a whole lot of stress out of this big decision as they will be able to use their expertise to compare the products and lenders for you.
Their recommendations will be presented to you with all the important information identified. Your broker can explain these things thoroughly, particularly when there is a lot of jargon terms involved. You will be looked after and have a professional there to help provide you clarity on any benefits and pitfalls.
Refinancing your home loan is a decision you should not take lightly. It will impact not just your home but also your finances. However, this can also save you a whole lot of money each week. It’s imperative that you take the time to make the right decision so that you can also make any required changes to your loan at the same time.
If you’re thinking about refinancing your home loan, then make sure you contact your broker at Living Home Loans. Being experts in this field we will take you step by step through the process for a more beneficial loan. We are also keen to chat further to you, in particular if now is the right time for you to consider an investment property purchase. We are only a phone call, zoom or email away and love to work exceptionally hard for our great clients. Looking forward to hearing from you!
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