So you bought a property a few years ago, and now you’re wondering if you can save yourself more in interest and pay your home off faster if you refinance. But, you have no idea how to check if there are better deals available, and if there is, how you can refinance home loan and save.
The good news is it’s not that difficult to review your existing home loan, and to then compare it to others on the market, so you can potentially find a better deal. What is difficult though is finding the time to sit down and do this. So if you find that you’re time poor and need help, then consider talking to a mortgage broker through eChoice. Our broker’s services come ‘free’ of charge and they can help you understand where you can save.
If, however, you want to compare home loans now, then let’s look at how you can get started.
To review your existing home loan, follow these steps:
1. Find out what type of loan you have. Is it variable, fixed or split?
2. Next find out how much interest you’re being charged per month.
3. Then find out what features your home loan includes, such as an offset account or redraw facility.
4. You also need to consider your own personal and financial circumstances, and if these have changed since you first took out your home loan. Do you have more dependants? Has your employment or your partner’s employment status changed?
Write down the answers to each all of these steps. If you’re not sure where to find this information then login to your online banking. Most home loan accounts list the details you’re looking for. If you cannot find these details online, then phone your lender.
Once you’ve got the information you need, then go online and type ‘home loan comparison’ into a search engine. Look at several different sites and then visit individual lender sites. Look at home loans that are similar to your existing home loan in terms of loan type and features, but have a lower rate of interest.
Most financial experts suggest that your interest rate needs to be at least a percent lower than your existing home loan for you to make a saving. When looking at interest rates always consider the comparison rate as this gives you the true cost of a home loan over 12-months as it includes all fees and charges.
The cost to refinance your home loan depends on your existing home loan type and the home loan you’re looking to switch to. Typically refinancing costs vary from between $500 to over $3000, so before you make a move calculate exactly how much refinancing will cost you. You can use a refinancing or ‘switching costs’ calculator to help you if needed. These can be found online.
Typical refinancing costs that you may encounter are as follows:
• Home loan discharge fee – up to $400.
• Home loan exit fees for fixed rate loans entered into before July 2011 – The costs depend on your home loan terms and conditions, the amount you borrowed, and the duration of your fixed period. But, this can add thousands to the cost of a home loan.
New Lender Fees
• Application fee – up to $600.
• Property valuation – up to $300.
• Settlement fees – up to $300.
• Legal fees – up to $150.
• Lenders mortgage insurance – The cost depends on the amount you have as a deposit and the value of the property you are buying. But, this can add thousands to the cost of a home loan.
• Mortgage title search – up to $200.
• Stamp duty – $1,000 or more.
• Mortgage title transfer fees – $200 to over $2,000 depending on the state you purchase your home in.
The top reasons for refinancing a home loan in Australia are as follows:
1. To get a better deal or interest rate.
2. To finance home renovations.
3. To buy or build a new home.
4. To consolidate debt.
5. To find a home loan with greater flexibility.
6. To reduce the cost of home loan repayments and make the home loan more affordable.
7. To rectify bad credit.
According to financial experts you should refinance if you:
• Will save on existing home loan costs.
• Can keep the same home loan features without paying more for them.
• Will pay for the cost of refinancing over the next 2-years in the savings you’ve made.
Before you make a switch, calculate all of your costs. This includes the additional interest that you’ll pay. For example, let’s say you have a $300,000 home loan and credit card debt of $20,000. You are finding the credit card debt hard to manage so you decide to consolidate this debt and increase your home loan to $320,000 and pay this off over 25-years. The additional $20,000 over 25-years will incur $15,075 in interest at 5 percent per annum. If, however, you make larger repayments than the required $117 a month for the additional debt, and pay $337 per month instead, then you’ll only add $2,645 in interest to your home loan.
Are you interested in knowing more about home loan refinancing? Then contact eChoice and find the right home loan for YOU today.