4 Questions to Ask Yourself Before Refinancing
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Today’s mortgage market is highly competitive and constantly changing, with newer and more attractive packages made available all the time. Refinancing means to replace your old loan with a new one that takes advantage of these better features, usually in the form of a lower interest rate. However, it is not the only thing refinancing is good for. While it can secure you a more competitive rate, it can also allow you to access the equity in your home, obtain additional features and allow you to consolidate your debts. The market is always changing, and it might be useful to ask yourself whether your current loan is keeping pace with your present circumstances.
1. What can refinancing do for my financial goals?
Refinancing, by switching your loan or lender, can allow you to access more. This may include the opportunity for improved loan features, obtain competitively priced loans from different banks, the ability to consolidate your debts under one low-interest rate, and invest using your home equity. If your circumstances have changed, or if you have had a loan over a long period, you may be able to access newer flexible repayments or rate options, have the ability to redraw cash depending on loan conditions, and enhance the portability of your loan.
2. What should I consider before refinancing?
Before you decide to refinance your current loan, it is helpful to assess your current financial circumstances and plan for any significant life changes that may affect your ability to afford repayments in the future. Knowing your borrowing capacity can alleviate the stress down the track by not overstretching your financial reach. Factoring in things such as starting a family, earning a large pay rise, kids leaving home – these are the things that will factor into your capacity to refinance. Like when you first took out a loan, the lender will assess your income and financial commitments to determine your ability to switch to a newer loan.
3. Am I aware of the fees involved with refinancing?
When refinancing, the interest rate figure should not be the only factor in your decision. There are other costs involved with switching you need to be aware of when thinking about the affordability of a new loan. If you want to borrow 80% or more of your current property value, you will be subject to pay the Lender Mortgage Insurance (LMI), which protects the lender if you cannot meet future repayments. This does not include the borrowing costs associated with new loans, such as application fees, valuation fees or settlement fees. If you are thinking about switching, you may also need to assess whether your current loan or lender imposes break costs or exit fees.
4. How can a broker help me through the process?
By consulting a professional mortgage broker, they will be able to give you a clear idea of how much you can save by refinancing, or by consolidating your debts. They can also offer advice about how to pay off your loan balance sooner, and can give you a better understanding of all the costs and benefits involved with refinancing. By undergoing a regular mortgage ‘health check’, they can help you determine whether your mortgage still meets your needs, and can advise better features suited for you. The best thing about their service? It’s free.
At Select, we offer quality, no-obligation free advice to anyone seeking information about their mortgage. If you would like to discuss your current circumstances or whether a new loan can help you achieve your financial goals, organise to meet with one of our friendly mortgage brokers now.