Our homes are often out biggest investments, and it can be tricky to know if we are doing the right thing when it comes to how we pay for them. It is wise to undertake periodic reassessments on your mortgage situation so you can stay on top of where your money is going, and sometimes refinancing is a good way to go.
But, when, why and how do you refinance your loan? We have broken down this question to with some home loan refinancing tips so you can rest easy that your mortgage is heading in the right direction.
- Why, When And How To Refinance Your Home Loan
- Why refinance your home loan?
- When do you refinance your home loan?
- How do you refinance your home loan?
Why Refinance Your Home Loan?
Bank lender’s rates can yoyo significantly, so if your bank has suddenly picked up its rate, it may be time to look elsewhere to avoid paying exorbitant amounts of interest. Conversely, your bank may be holding steady, but another bank is offering a special low rate, or there is a new lender on the scene who can do a good deal. All banks are guided by the rate set by the Reserve Bank, however even a 0.02 of a percent difference can make a significant impact when you apply it over several hundred thousand dollars or more. You can easily jump on our home loan repayment calculator to compare the effect of rates and research what is available and acceptable, click here to access the calculator.
Before committing to a lender move, as there are a few pitfalls to take into consideration. This includes the period of time the low rate applies (and whether the rate then jumps up to above the standard), as well as the fees involved in moving your mortgage. In the long term, these factors could undo the savings you were originally seeking. Do your research or speak to a home loan refinancing expert to weigh up the costs (hidden and transparent) with the potential savings over the long-term.
Another reason people need to refinance is due to a major change in their financial situation or they are wishing to consolidate debt. Rolling all your personal loan and credit card debts into a single repayment with a much lower interest rate is a great way to save yourself money and squash those debts much faster.
Refinancing can also provide a little extra cash for something like home improvements or another property investment, where you effectively take out additional finance on top of your mortgage and then use the cash. To do this, you will need to accurately estimate your borrowing capacity by speaking to an expert, or a borrowing capacity calculator helps estimate how much extra you can afford. Check out our calculator.
When Do You Refinance Your Home Loan?
The two biggest things to consider when deciding if and when to refinance your home loan is your income and the loan balance.
Firstly, your income. Estimate your borrowing capacity before taking on any additional debt with your home loan (such as refinancing for large expenses or rolling other debt into one repayment) so you are certain you can afford the ongoing repayments. Many banks will only take on new customers with three to six months consistent, full time employment, so if you have just changed jobs, you may need to hold off on the application for a little longer. You also need to be assured that your job is secure, or at least as secure as possible. It is also a good idea to have the means to pay a couple of months worth of mortgage repayments in case of unforeseen circumstances, such as accident or injury.
The other consideration when looking at the right time to refinance is the balance on your home loan. If you don’t have much left to pay off, you may not want to redraw on available equity. In addition, if you have paid a large amount of your loan already, refinancing may cost additional years on the loan and the fees involved may counteract those slightly lower repayments over a relatively short term.
How Do You Refinance Your Home Loan?
One you have conducted your research, done your sums and compared loan options using an home loan repayment calculator , it is time to approach a broker or the lender direct. Brokers can save you time and do much of the behind-the-scenes work for you, plus they get paid by the banks, so no real cost to you. For some people, they are a must as they have the experience, expertise and connections to get the job done quickly and effectively. For other people, approaching a lender direct or working through an online lender is the way forward but from all our experience, the outcome is more time consuming and can lead to being cost prohibitive.
You will need to gather up documents such as your identification papers, recent payslips and address verification to proceed with the paperwork. Once you have everything ready to go, your broker or lender will assist you to work through the application process.
For more home loan refinancing tips, speak to an expert who can guide you according to your personal circumstances.
Alex Morrison has been an avid digital marketer for over 10 years. In this time he has worked with a range of businesses giving him an in depth understanding of many different industries including finance, law and web design. As the owner of Integral Media he is now utilising his knowledge and experience with his rapidly increasing client portfolio to help them achieve their business goals.