Taking out a home loan can be frightening, but when you mention the word refinancing some people look terrified and cant wait to get away fast enough. But is refinancing really that hard?
Honestly? No. With a little knowledge, refinancing can be as simple as saying lets do this and then looking at your options.
What Do You Need to Know Before You Refinance?
Lets start with the basics. Refinancing is replacing your old home loan with a new loan that gives you better options. Typically, these new terms provide you with the following benefits:
– Reduced monthly repayments.
– Fewer fees and interest.
– Increased repayment flexibility.
– Access to your home equity.
– Debt consolidation.
For example, lets say your current home loan is $250,000 with an interest rate of 5.75 percent over 25-years, with your monthly repayment being $1,573. However, you wish to borrow an extra $50,000 to pay out your car loan and credit card debt, and go on holiday. After discussing your options with your mortgage broker, you can raise the value of your existing mortgage to $300,000 to cover the additional funds needed, and you can refinance your mortgage over 30-years at 4.75 percent. This will reduce your repayments to $1,565 a month. Of course, you need to be aware that you will pay more in interest if you take this option, as the loan will be over an extra 5-year term.
When refinancing you are applying for a new loan, so you need to expect to go through the same process as you did when you first applied for your home loan. This means providing proof of identity, income and employment.
Now while this can sound daunting, a mortgage broker can help you through the entire process. So you do not need to be concerned.
Knowing if Refinancing is Right for You?
Before you elect to refinance, its important for you to consider all of your options. Rather than refinancing, it may be more cost effective for you to renegotiate your home loan terms with your existing lender.
Also consider your future plans. If you are considering moving due to family or work commitments in the next year or two, then refinancing may not be viable as you will not be able to recoup the costs in such a short time. A better option may be to wait until you sell your property, and to then look at a new home loan.
You also need to think about your personal circumstances, and if these have changed. To determine these, ask yourself the following questions:
– Has your income decreased or increased since you first took out your mortgage?
– Has the value of your home increased or decreased over this time?
– Do you now have more equity in your property?
– Will you still need to take out lenders mortgage insurance?
– Do you have more children?
All of these factors will dictate to whether or not a lender will approve your home loan or decline it. They will also dictate to the interest rate that you get.
Shop Till You Drop
Its important for you to know what offers are available when refinancing. An eChoice broker can give you an excellent indication of many products that are on the market. However, it always pays to do your own research to ensure you are getting the best deal available to you. Shop around, compare interest rates, fees and features. Look critically at home loan terms and conditions and ask lots of questions. The more you know, the better informed your choice will be, so you can make a strategic decision.
Refinancing will usually incur a home loan application fee, a property valuation fee, and a settlement fee on your existing home loan because your lender may be left out-of-pocket. Lenders can charge this fee if your loan was taken before July 1 2011, however loans taken out after this date can no longer charge an exit fee. You also need to consider any break costs if your existing home loan is fixed. These costs, in some cases, can be worth thousands.
Do you want to know more about refinancing? Then contact eChoice, we can help YOU.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!