5 Things To Consider Before Refinancing
We often get asked about refinancing ‘Is it worth it – How much will I save?’
Refinancing your existing loans can most certainly have some benefits
Lower interest rates
Loan features more suited to your needs
Stronger banking relationship
However, it can also be a bit of a process & what looks like a fabulous idea to save a few bucks can become a headache if you don’t get the right advice.
Here’s a few things that are good to consider (and help us get the best fit for you) before jumping on the refinancing band wagon.
1. Understand why you’re refinancing
If you’re thinking about refinancing, there’s clearly something missing or you’re unhappy with your current provider. Think about what’s your motivation for moving?
Some common reasons for refinancing include:
Securing a lower interest rate
Accessing your equity – for renovations, business ventures, family emergency
Obtaining loan features more suited to your situation
Consolidating high interest debt
Knowing the answer to this question makes it easier to find the best new loan for you & helps us immensely in connecting you with the best provider.
2. Compare home loans options
If you’re going to go to the trouble of refinancing, you’ll want to make sure it’s worth it.
That’s where we come in – your friendly mortgage broker, we’ll do the leg work for you, presenting you with all the relevant options for your situation, saving you time & the risk of damaging your credit score which can occur when loan applications are made to multiple lenders.
We will also provide answers to questions objectively. Such as what are the new conditions of your loan, are there any features you won’t have anymore, realistic turn-around times for settlement, so you can compare ‘Apples with Apples’ without the spin.
3. Crunch the numbers
Although a new lower interest rate maybe super attractive – there are a range of other costs that can come into play when refinancing that mean it may not be as competitive as you think.
We’ll advise you on these as applicable – in the meantime here are some common expenses you may encounter when refinancing.
Application fee for the new loan
Clawback of original cash payout you received from the bank when you took out the initial loan
Discharge fees from your existing bank
Solicitors costs for transferring the mortgage
Added interest costs (yes you read that right – see below*)
*You maybe 5 years into a 25-year loan when you decide to refinance. Then when you transfer to your new bank, they offer you a 25-year loan. So on top of your lower interest rate, you’re repayments will be a lot lower too, win-win you may think but there is a catch – by accepting a 25 year term instead of asking for a 20 year term (25 – 5years you’ve already paid) you’ve just cost yourself another 5 years’ worth of interest costs & will most likely pay more interest overall.
Once you have all the figures available, we do the sums to be sure the benefits of refinancing outweigh the costs.
4. Apply for the new loan
Yes, there’s no escaping it there will be paperwork that needs to be completed. The good news is by using a mortgage broker you only have to complete one application – rather than one at every bank, which is the case if you were refinancing on your own.
You’ll need to provide up-to-date proof of income, ID, and usually the last 3 months of bank statements on all transactional accounts and six months on all loans you currently have.
The new lender needs to get to know their potential client & be comfortable that you’ll be able to repay the loan & conduct your accounts to their satisfaction. If you’ve recently upped your credit card limit, taken out personal finance (car, holiday etc.) this can be a warning sign to banks that perhaps you’re not managing your finances as best you can. If this is the case, we’ll work together to present your application in the best light possible – alternatively if we think it is in your best interest to hold off changing banks for a while, we’ll let you know.
5. Prepare for a valuation
A potential condition of new lending could be the requirement of an updated valuation on your home.
This will add to your costs. In these instances, it can be helpful to do little things to help maximise the value of your property such as ensuring the grounds are tidy, repairing the hole in the wall that you never got around to, or finally painting over little Tommy’s Picasso endeavours. These may seem small but do change a valuer’s perception of a place & can also impact your LVR (Loan to Value Ratio – more about this another time) in a positive way.
As you can see from the above there is a fair bit to consider when thinking about refinancing –rest assured it is generally a straightforward process, especially when you have all your paperwork in order & have a mortgage broker to guide you along the way. If you’re thinking about refinancing it’s a good idea to contact your mortgage broker first & arrange a time to do a home loan review before committing to anything. This way we can make sure you’re getting the solution that best suits you & your family’s needs.