Our financial circumstances and financial goals tend to change over time, and refinancing a home loan with several benefits renders such a financial goal viable. The best thing about home loans; you always have the option to switch through refinancing.
With so many lenders and mortgage products on the market, lenders compete heavily when it comes to interest rates. An experienced broker would advise you to form an idea of the amount of your current mortgage to secure you the most competitive product on the market.
What is Refinancing?
Refinancing is the process of procuring a new mortgage to pay back an existing loan. This happens when there has been a change in your personal or financial circumstances, or simply because you want a better option on your home loan. If you want to reduce the total outstanding amount or the reduction in monthly repayments, refinancing not only helps you to save a large sum of money in monthly mortgage payments but with proper knowledge of how refinancing works, it would benefit you in improving your finances.
In January 2021, 10.1 million dollars worth of home loans in Australia were refinanced in just one month. In June 2021, that figure climbed to $17.4 million.
Why Would You Refinance?
Refinancing can help you save money. When you want to refinance, you generally want to increase, decrease or keep the loan amount the same. There are many advantages to refinancing which include saving more money with lower interest rates, accessing extra features in your home loan, or managing debt by rolling them over in your mortgage. You may also use the equity in the property to fund another property, or you may renovate your existing property. Depending on your strategy you should discuss it with a property strategist first.
How does Refinancing Work?
The first thing to remember while refinancing is to check the costs by checking in with your current lender. The cost might vary because it hinges on the Terms and Conditions of your current home loan. You must compare home loan products to corroborate the fact that you can acquire a better deal than your existing mortgage.
Are You Eligible to Refinance?
To be eligible to refinance preferably you should have less than 80% outstanding debt on your home loan. You are entitled to refinance after every six months but this comes with a catch. You will add an inquiry to your credit file every time you refinance. However, it is wise to refinance at the earliest depending on the amount of equity you have to use. It is important to have an accountant who understands your situation and can help you accordingly.
Refinancing on fixed interest rates with its break cost and early exit fee isn’t advisable. Many people find it suitable if they can recoup these costs within two years of refinancing. Nevertheless, you should talk to the best mortgage broker if you are considering this option.
Self-employed people can refinance to a low mortgage. If you are self-employed and you are unable to provide necessary income evidence you are still able to borrow up to 85% of the value of your property.
If you owe 80% or less of your property’s value, and all your defaults have been paid, and are no longer showing on your credit file, you are eligible to refinance your home loan.
What Are The Costs to Refinance?
The various costs that might be applied if you refinance are borrowing costs, loan-application fee, valuation fee, settlement fee, break costs, existing fee, discharge fee, government fees to register and transfer your property, ongoing fees depending on your mortgage, and lender mortgage insurance.
