When should you consider refinancing? It sounds like a complicated question, but it’s really simple! Refinance when it’s going to save you money. Here’s all the information we want you before you refinance.
What is refinancing?
There’s more to refinancing then meets the eye. But it might be a lot simpler than you think. Refinancing is essentially moving your existing loan to another lender and paying out the existing loan. You’re then left with a new loan. Refinancing doesn’t have to be moving lenders, it can be done internally. Here you’re just restructuring your existing mortgage to hopefully get a better structure.
There can be a list of reasons you should or want to refinances your existing loan. But as with anything, there are pros and cons we want you to know about first…
The main reason you probably want to refinance is to get a lower interest rate. A better interest rate is always a pro in our book, get more for your money! Getting a lower interest rate will likely mean lowering your repayments, will you save money? You could also consolidate your debts or take out a larger loan for renovations, etc. You might also want to refinance if you borrowing capacity is limited with your current lender. If you’re looking to extend your options, getting a new lender might give you the extra options you’re looking for.
Wherever there’s pros, there are usually cons…and one of those cons tends to come up a lot. Cost. There are costs associated with refinancing. You need to consider whether these costs are beneficial for you and whether you can recoup them later. Second, do you have the borrowing capacity. Just like when you first got that loan you still need to be in a financial situation where you can afford the loan you want. Borrowing capacity has gotten a lot tighter in Australia, so you need to consider how your circumstances have changed.
How often should you review your loans?
Home and investment loans tend to be very set it and forget it. This is not what we want for you and your loans. To keep them healthy you need to be reviewing them every 12 months at least. It’s a quickly changing market. Don’t miss out on savings. Bank policies are usually geared towards helping new customers. So take the health of your loan into your own hands and make sure you get a review if your circumstances change at all. That includes if you get a pay raise or find yourself in a better financial position, your borrowing capacity could be increased.
Are there costs when refinancing?
Your costs will change depending on what you’re refinancing and if you’re changing lenders. So here are some of the costs you need to consider. If you’re looking to discharge from your current lender you may be faced with a discharge fee between $150 and $400. There are other fees associated as well like mortgage registration fee from the government, establishment fees, package fees from your new lender, and maybe even lenders mortgage insurance. We know this sounds overwhelming just your mortgage broker can make sure you have a cost benefit analysis. The analysis will make sure the change will put you in a better position. Because there’s no point making those changes if you’re not going to make the fees back.
All up your refinancing costs could end up around $1,000. We know that sounds like a lot right? But there is some good news. Your refinancing costs can be worked into your loan. All of this information can be compiled by your mortgage broker. So you don’t have to worry if you’re getting the best deal or missing any hidden fees
What does it mean to consolidate your debts?
It can be really difficult to keep track of those loans. Home loan, credit cards, personal loans, the list could go on. Consolidating means putting all these debts under your home loan. This can have huge benefits. Every debt has a different repayment with a different interest rate. Consolidating reduces your repayments! Your mortgage interest rate will be considerably lower than your credit card, so you can pay those debts down faster and improve your financial position.
You might be wondering why you’d want to put that car loan over a 30 year loan. This is a fair question. The answer is, you probably don’t. That’s why you should speak to your mortgage broker and they can help you understand how you can pay your debts down faster.
There are a lot of things to consider when you’re looking to refinance. We understand it can be a stressful process. We want you to be excited about your financial future!
For a free home loan health check contact the team at Rise High here!
If you want to talk to the team about refinancing and your debts, leave your details below and we’ll contact you!