Why refinance your mortgage to save?
It’s time to shop around for a better deal on your mortgage!
There has been a 100% increase in rates in the last six months, from an average 3% variable rate on home loans, the RBA raised rates by additional 3% in just six months after over a dozen years of decreasing rates on mortgages. The uncertainty and constant changes in life compound that effect. Your family structure, lifestyle, and financial situation may have changed since you last reviewed your mortgage or purchased your home. There could be another home loan that is well-suited to your current situation and offers you a better rate. If you compare home loans and discover one that is better suited to you, you may want to consider refinancing, which is the process of moving your loan from one lender to another.
Unlike in the “good old days,” when borrowers seemed to be stuck with one lender for the duration of their loan, it is common knowledge that lenders charge a loyalty tax and it is now very common for people to refinance mortgage with a different bank or lender to secure a better deal.
What does refinancing Loan with a mortgage mean?
Refinancing is the process of transferring a mortgage to a new organization or account. When there are appealing benefits such as a lower interest rate, more flexible loan terms, and features, smaller fees, special offers, or debt consolidation requirements, it is frequently done.
Example of Refinancing
Suppose you have a $600,000 mortgage but have already paid off $200,000 of it. The remaining $400,000 – or even more, up to 80% of the property’s value – can then be refinanced to a new home loan.
Many homeowners choose to refinance their mortgages in order to obtain a better interest rate, but some access their home equity for renovations, consolidating debts or to make an investment. You can refinance your mortgage with any bank or lender of your choice, so long as you meet their credit criteria.
What are the types of refinancing options available?
There are mainly two ways to refinance mortgage:
- External refinance – It occurs when you transfer your loan to another financial lender.
- Internal refinance – This occurs when you refinance your home loan with your current lender.
How frequently can you refinance your mortgage?
There are no limitations on how often you can refinance mortgage you have. However, you must meet the lender’s credit requirements. These will include the standard credit history, income, and assets requirements that you had to fulfil in order to get your loan approved.
Whether you’ve had the loan for 6 months or 20 years, refinancing can be a feasible way to save money and should be considered whenever your circumstances change, or you believe your interest rate isn’t competitive. Nevertheless, it’s critical to understand the costs of refinancing and make sure they don’t outweigh the savings you’ll receive.
What factors should be considered before refinancing?
Prior to refinancing, you should carefully consider whether it makes financial sense to replace your old home loan.
Here are some pointers to consider before refinancing your home loan:
Costs – There are some costs associated with refinancing, such as loan application fees for new loans, mortgage discharge fees, or break costs if you have a fixed-rate mortgage. Some lenders also provide a “no-cost” refinance, which usually entails paying a slightly higher interest rate to cover the closing costs.
Lenders Mortgage Insurance (LMI) – If your home has less than 20% equity, you may be required to pay Lenders Mortgage Insurance. This is because, despite the fact that your previous lender is no longer at risk, you cannot transfer the existing LMI to the new loan.
How can you benefit by
refinancing your mortgage loan?
Lending has become a competitive business, and there are obviously many financial institutions in the market vying for your business, both traditional and non-traditional. By refinancing your home loan, you can frequently find a lower interest rate, lower your fees, or generally secure a better deal than you are currently receiving. This means you could end up lowering your mortgage payments, sometimes significantly.
You may also be able to access new home loan features, like offset accounts or redraw facilities, if you refinance.
If you can comfortably make your current mortgage payments, refinancing may allow you to shorten the span of your loan. While this means you’ll have higher loan payments in the short term, you’ll save a lot of money in the long run if you pay off your home loan sooner.
If you’re having trouble making your payments, you could refinance your home loan and make provision for your living expenses.
Refinancing may enable you to purchase an investment property with no down payment. This is because many lenders will allow you to use the equity in your home as collateral against another property. You can eventually build an entire property portfolio by using the equity you develop in each property to purchase a new one.
Renovating or expanding a home usually necessitates a significant investment. And, unless you have substantial cash reserves, refinancing may be the most cost-effective way to obtain it.
While there are other financing options, such as construction loans, personal loans, or even credit cards, none can match a home loan’s low interest rates or flexibility. You give yourself the opportunity to take advantage of this by refinancing, potentially saving you money.
Last, but not least, refinancing may help you improve your finances, particularly if you currently have multiple loans or personal debts. By refinancing, you may be able to consolidate these debts into a single debt secured by your home.
This should give you access to lower interest rates, and you’ll only have to make one repayment rather than worrying about paying off multiple loans. However, keep in mind that this may require you to extend your loan term and pay more in the long run.
Seek the best advice about refinancing mortgage from Borrower First
Like most things these days, an abundance of choice and lack of clarity on how the features work for you, the process can be quite challenging and often put in the too hard basket. If you’re thinking about refinancing but haven’t yet taken out a mortgage, you can still do so. In fact, it is quite common for people to refinance their home loans within 6 months of purchasing their home!
When you think about it, this makes sense. For most people, buying a home is all about the house or property. It very rarely entails devoting more time to finding the right home loan, but the loan is equally important.
Finally, refinancing will not suit everyone in every situation. Before making a decision, it is critical to consider your individual circumstances and weigh all of the pros and cons. To assist you in making your decision, Borrower First is right around the corner. We specialize in refinancing home and investment loans, have access to more lenders and better deals, and most importantly, we put YOU ‘the Borrower’ first. So you can stop sweating the small stuff and start focusing on what really matters.
Contact us today!