Home loan not up to scratch? Looking for a better rate? Or do you want to unlock equity? Then refinancing could be for you. But there are some important questions to ask first.
If you’re considering refinancing your mortgage, you’re not alone.
With the rising cost of living and interest rates hitting the hip pockets of many Australians, it’s a popular move.
According to ABS data, November 2022 saw refinancing values reach a record high of $13.4 billion.
Refinancing may offer you opportunities to unlock equity, land a better rate and avoid what’s known as “loyalty tax”. Sticking to the same loan could see you missing out on favourable rates and features lenders like to use to woo new customers.
Or maybe you’re about to come off a fixed loan period and are bracing for a potential rate hike.
Whatever your reasons for refinancing, we’ve got some questions to help you through the process.
What’s your financial picture?
Banks want to take a squiz at your financial profile before lending you a chunk of change. So check that your *credit score is healthy to avoid disappointment.
Look at your budget to see how much you can afford to pay toward your mortgage.
Include interest, repayments, and service fees. And factor in possible additional refinancing costs such as application and valuation fees.
You can also consider how the length of your loan impacts your budget. A longer-term loan usually comes with lower repayments but more interest over the lifetime of your loan.
A shorter-term loan on the other hand would usually mean you make higher repayments now, but you could save on total interest payments.
Whichever way you’re leaning, we can help you crunch the numbers.
Do you have equity?
Having 20% equity in your home is typically a lender requirement when refinancing.
But what is equity?
It’s the difference between the market value of your property and the balance of your mortgage. And with the recent decline in property values, it’s an important thing to check.
The 20% equity typically acts as a deposit. Not having 20% may mean you have to pay lenders’ mortgage insurance, which may make refinancing not worth your while.
And negative equity – when your mortgage balance exceeds your property’s value – would most likely put the brakes on refinancing plans.
But if you have additional equity you may be able to unlock it when refinancing.
Let’s look at an example – say your house is now worth $1 million. But you bought it for $800,000 a few years back with a $600,000 loan that you’ve paid down to $500,000.
Banks typically allow a loan for 80% of a property’s market value (depending on your financial position and other factors). So if you refinanced your $500,000 loan to an $800,000 loan, that could unlock $300,000 for things like reno projects or investments.
What are you looking for?
Now it’s time to think about what you want from a loan.
A better interest rate is usually top of the list. But what other features could benefit you?
An offset account may be something you want to reduce interest. Or the ability to make additional repayments without incurring penalties.
Depending on what you’re after, you may not need to move to another lender. We can always talk to your current lender first to see if they will come to the party.
If not, we can then explore your options further afield.
Want to refinance to unlock a better interest rate, features and benefits, or equity in your home? Give us a call.
We can help assess your situation to see what’s possible. And locate loans and lenders that are a great fit for you.
*You can access your credit report for free each year by contacting the following credit-reporting agencies:
- Check your Credit (Illion) www.checkyourcredit.com.au/Personal
- Experian Australia Credit Services www.experian.com.au/consumer-reports
- Equifax www.equifax.com.au
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