Unfortunately, many borrowers put refinancing a loan in the too hard basket because they think it involves a lot of fees, effort and time. And In some rare cases, this may be true, however, we have a lot of clients come to us and achieve significant savings by refinancing. With our guidance and expertise, we are able to help them along the way to a successful, and surprisingly good outcome.
In saying that, we don’t want to play it down for you, refinancing can require some effort to get organised and there can be many factors involved. The best way to ensure your refinancing journey is a smooth one is to understand the pros and cons. Below we have set out the 3 main components:
Firstly, let’s look at the COSTS…
Before you start shopping around for the best rates, it’s crucial to remember that refinancing isn’t free. In some cases, it could take time to recoup the upfront costs. This all needs to be weighed in when considering the benefits of refinancing.
You need to remember, what you’re doing is taking out a new mortgage to pay off the old one – so you’ll have to pay some of the same costs you did when you first got your mortgage.
What fees will you pay?
- Break fee (IF currently on a fixed product) If you are on a fixed rate loan, you may need to pay a break fee.
- You will personally have to ask your existing lender to confirm how much that will be.
- Discharge (or termination) fee
- A fee charged by your lender when you close your current loan.
- Application fee
- Upfront fee when you apply for a new loan, although many lenders do not charge these any more.
- Government Fees
- You will have to pay a mortgage release fee and a new mortgage registration fee to the government each time you change lenders.
- Lenders Mortgage Insurance
- If you have less than 20% equity in your home, you might have to pay lender’s mortgage insurance.
- This can increase the cost of refinancing and is the biggest barrier to negate the savings you’ll get from a lower interest rate. We can arrange a valuation free of charge to see if you will be free of this.
Your broker will factor the above fees into the numbers to be sure that refinancing offers the benefits you are looking to achieve.
Other things to consider:
Will you earn your investment of time and effort back?
For example, it may cost you up to $1,000 in the above fees and costs. Once you’ve done the math to figure out how much it would cost to refinance, you need to figure out how long it would take you to earn that money back. However, many lenders offer refinancing rebates that more than cover any cost you would have to pay to refinance.
What are your other financial and lifestyle goals?
You don’t want to spend the time, effort and money it takes to refinance just to lose those savings to mindlessly spending more money on other things- just because you have less cost for your mortgage. Consider exactly how you plan to use your newfound savings. We have seen many clients make significant renovations and end up paying the same as they were, or even less. Alternately, the savings can be used to take years off your mortgage by making extra repayments especially while the interest rates are so low. You may also look at paying off any other high interest debts that you may have.
Is this the perfect time to consider your other property investment goals?
You may also be pondering if you can buy an investment property (or another one). When looking at refinancing, this is the perfect time to look at this also. Many lenders or brokers may just tie properties together in a structure called cross-collateralisation. This reduces the freedom you have to make changes to individual properties when you want without asking the lender. When you are refinancing this is the perfect time to get equity out that can be used to buy the ‘next’ property.
Now that we’ve covered the costs involved, let’s look at how much EFFORT goes into refinancing…
A lot of the up-front hard work you need to do in terms of familiarising yourself with procedures, terms and definitions has already been done! You have successfully negotiated a home loan already. But, bear in mind that you’ll still need to provide recent payslips, any alternative income statements, identification documents and credit card statements. It can be a surprise how much is needed nowadays especially if you have not got a home loan in recent years. Things have changed on that front.
When refinancing, there are quite a few things you can skip over this time around. For example, consulting a conveyancer is not necessary this time around.
Here is a list of the basic documents you will need:
- Your ID
- Proof of your income
- Your current home loan statements
- Transactions statement to demonstrate your living expenses
- Personal loans or credit card statements (if applicable)
- Council rates notice
Other things to consider:
Choosing a new lender can make you question the specific items that are important to you in your home loan. You may not have had a chance to ‘consider’ this first time around. These include things like, do you want a lender with a branch? Do you want a fixed product or an offset account? Do you want no ongoing fees? Do you want a product that offers a transaction account and a credit card? The options are many, however, we suggest you look at what your new lender does not offer, and also whether the true cost of certain things are worth it for you.
And lastly, the TIME it will take to refinance…
Unfortunately, there is no set time during which the refinancing process can take. End-to-end, it can take anywhere from a few days to a couple of months. This really depends on the complexity of your loan and the lender that you choose. In most cases, you’ll have your new loan all approved within a few weeks.
Overall, if you are paying too much on your current loan or unhappy with your lender, then the option to move is really straightforward. What’s another couple of months staying with the home loan that you have been paying for years. The above information should give you a better insight into whether refinancing is the way to go. If it is, then you can potentially save tens of thousands of dollars by refinancing your loan with a better value lender.
If you’ve considered all these factors and ready to refinance or just want to gain some more knowledge. Please don’t hesitate to contact us...
At Living Home Loans we pride ourselves on being able to providing property buyers with successful finance so you can enhance your freedom. Have you got a property dream that we can help you with? Give us a call on 0439 110 255 or contact us today for an appointment.
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