What is refinancing?
Refinancing is a simple enough process to change your home loan to a different home loan, or swap to another Lender/Bank. But refinancing a home loan is actually a bit more complex. So, it’s always a good idea to have an expert mortgage broker refinancing your home loan for you. Wendy de Graaf is skilled in this area and has assisted many of her clients to achieve great outcomes. There are benefits – and considerations. Firstly, you would only consider refinancing to achieve an improvement over the current home loan. Secondly, you would possibly be looking for other benefits from the refinancing exercise.
Now, benefits could be in terms of:
- the interest rate,
- the home loan fees,
- the amount of the repayments, or
- the frequency of the payments.
But there are other benefits of refinancing, aside from the financial considerations.
Benefits of refinancing a home loan
Refinancing generally implies choosing a new lending institution, although not always. In other words, you might choose to pay out your current home loan, and take out a new loan with a different lender. Of course it is possible to negotiate a better home loan with your current lender. This can certainly lead to a better outcome for your existing home loan.
Changing to a new home loan can incur some pay out fees or penalty fees to close your existing mortgage.
Some refinance fees & costs to enquire about are:
An administration or legal fee to prepare the required documentation by your current Lender, ranges between $250 – $350
Land registration fee:
Government fees to remove the existing mortgage from your current lender and register a new mortgage to your new lender approx. $330 depending on States
Break cost fee:
This is applicable to your current Fixed rate home loan if you decide to refinance during your fixed rate period term. Break costs may be charged depending on the interest rate movements at the time in comparison to when you fixed rate term commenced. This represents compensation for any loss of profit to the bank by your decision to break the contract. These costs can greatly vary and it is always beneficial to enquire with your current lender what these costs are as they may be less the saving you will endure by refinancing. *
A fee could be charge or part of the cost to obtain an upfront property valuation as per the current market value of the your property you are offering as security for your home loan.
Some lenders have various products that could incur an Application fee. **
Lenders Mortgage Insurance (LMI):
If you own less than 80% equity of your property, your new Lender may charge you Lenders Mortgage Insurance premium. If you increase your existing home loan with your current Lender you will need to pay an additional payment if you borrow more than 80% of the value of your property. Lenders Mortgage Insurance protects the lender against mortgage default and is paid by you as it is capitalised on top of your loan.***
Some home loan products could have a monthly or annual ongoing fee.
* Click here to find out more about home loan break costs: https://www.canstar.com.au/home-loans/what-are-break-costs
** On Canstar’s database, this fee can range from $0 to $1,000.
*** Find out more about Lenders Mortgage Insurance here. https://www.canstar.com.au/home-loans/lenders-mortgage-insurance
When you have a mortgage broker refinancing for you, they work through all these details for and with you. Obviously, you need to make sure that the potential savings from the new loan outweigh the fees from closing the old loan. But these days with extremely low interest rates, you may just find some very good reasons for refinancing your home loan.
Financial benefit of refinancing
The most obvious benefit is to reduce your mortgage repayments. Now, there are a couple of ways that this can be done. If you haven’t looked at your mortgage recently, you may find that the interest rates have dropped lower than your current interest rate. Therefore, you can make a direct saving by refinancing to a lower interest rate. And the savings from refinancing to a lower rate is not just a short term saving, but can potentially save you thousands over the life of your home loan.
Also remember that today your home loan can be with one Lending institute and your everyday transaction accounts can be with another Lender. Yes, the Lenders do prefer to have all your business. But with today’s technology, it is not necessary. Therefore, your Direct Debits can remain with your everyday transaction account and you can arrange your Home Loan payments to be Direct Debited from this account.
Reduce your monthly repayments
Here is a clever way to save money on your home loan by reducing the loan repayments. And, there is more than one way to do this. For example, you can choose a longer pay back period, say from 25 years to 30 years. This simple refinancing can substantially reduce your home loan repayments, putting more money in your pocket. If you are fortunate to be ahead of your home loan repayments, you can choose to refinance your home loan to reduce the repayments. Be sure to compare this with any extra interest this may cost you over the longer time frame.
These days it is very common for people to find themselves stuck with different debts from loans other than their home loan. Personal loans, car loans and credit cards all have different interest rates and terms and conditions. Often these other types of loans are more expensive than the typical home loan interest rates. It can be quite a struggle to make several different repayments at the same time. There is great potential to consolidate many of these different loans into a single consolidated loan. This new loan can often be refinanced at a lower interest rate which makes the repayments easier to manage. With the assistance of a caring and helpful mortgage broker refinancing your home, greater control over debt can be a benefit of refinancing.
Refinance and Renovate your home
If you are considering buying a new home, it might be worth considering other options first. For example, it can be much cheaper to renovate your existing property in comparison with selling and buying a new home. Would you like to add an extension, replace the kitchen, or add a new bedroom to your house? Have you considered refinancing against your existing home? This could release the funds (equity) needed to do the renovations. Sometimes it is preferable to remain in your current home, than to pay all of the selling costs and stamp duty to buy a new home.
Refinance for other purposes
Why stop there? If you have built up equity in your property, you can choose to refinance your home loan to release the equity. This allows you to access funding for other projects you have in mind. Such as buying an investment property, or investment in a business. Or maybe the time has come to buy a caravan or a cabin on a cruise ship! No matter what ideas you have for the future, refinancing is a great way to unlock some of the equity in your current home. Of course, all of these wonderful ideas must be considered very carefully and undertaken only when you’ve sought expert financial advice.
Refinance to a different home loan package
These days, there are many different home loan packages on the market. You really need to be an expert to understand all of the different benefits available to different people and different circumstances. So why not speak to an expert like Wendy de Graaf who understands how to match the best home loan package to meet your needs? No matter whether you want to slow the payments down, access your equity, or speed up the payments to get ahead, Wendy can help you find the right home loan for your needs and circumstances.
Call Wendy today for a friendly and helpful discussion about refinancing your home loan.