With major lenders increasing home loan rates and smaller lenders opting to drop theirs, now is an ideal time to review your mortgage. Refinancing your home loan could shave years off your home loan terms and could also see you save thousands in interest.
Last November, major Australia banks elected to raise home loan interest rates by as much as .20%. This move was independent of the Australian Reserve Bank (RBA) and shocked many borrowers. Now there’s talk that major Australian banks may raise their rates independently again so that they can further reduce their costs.
In an economy that’s just ticking along the last thing that home owners want to hear is that banks want to raise their interest rates. This is why it is important that you give your mortgage a health check at least every 12-months. This way you ensure that you’re not paying too much and that your home loan remains competitive.
You may also find that your circumstances have changed. For instance, you may have taken out a loan as a self-employed person, but you’re now a full-time employee for another business, which may mean that you qualify for a lower interest rate than you currently have. You may also find that if you’ve had a home loan for some time that the value of your home has increased that your loan-to-value ratio has decreased. If this is the case, then you may be entitled to a lower home loan interest rate.
Both variable and fixed rate home loans are at record-low rates, with many starting at around 4%. However, before you rush into any deal just remember that you need to look at more than just the interest rate.
Before you refinance it’s important for you to conduct independent home loan research, and for you to consider your own personal and financial situation. Let’s look at these factors in greater detail.
1. Always look at the comparison rate – When researching home loans, always look at the comparison rate as this is the advertised home loan rate, plus any home loan fees and charges. So this rate gives you a better indication of what loan represents good value.
2. Calculate costs – Some lenders will charge you a fee to take out a new home loan. An application fee can cost between $300 and $800, so make sure you ask how much you’ll be charged and if there are any other fees associated with the loan that you should know about.
Some lenders will also need to value your property before they will approve finance. This is so that they can confirm that your property is in good condition and worth more than the loan that you’re taking out on the property. Most lenders will charge you a fee to value your property, which can be up to $800.
It is also important for you to consider what type of home loan you already have. If you have a fixed rate loan, then it may be more viable for you to wait until your fixed term has ended before switching home loans due to break fees. A break fee is charged when you terminate a fixed loan before the end of its term.
3. Consider your personal situation – Over time your personal situation could have changed and this can have an impact on your home loan borrowing power. For instance, let’s say you took out your home loan when you were single, and since then you’ve married and had two children. Your two children are classified as dependents, so they will decrease your borrowing power as you have to allocate a certain amount of your earnings to caring for them. On the other hand, if your partner works then this may increase your borrowing power as the income you have coming in is now greater than when you were single.
Do you want to know more about refinancing? Then contact eChoice today.