Why Should I Consider Refinancing 

With interest rates across lenders constantly fluctuating, your current interest rate could be at a premium – meaning thousands of dollars of savings your missing out on. Just like servicing your vehicle and routine health checkups, your finances deserve the same attention.

When was the last time you took a hard look at your mortgage? Since the home loan market is very competitive, lenders are trying to outdo one another and earn your business. They’re offering the best interest rates and cheaper home loans to entice people to refinance their home loans and save money.

This puts you in an excellent position to get a better deal on your home loan. You could potentially save thousands of dollars via this process. However, you need the right insight if you are to secure the best option for you. Often, we can negotiate a discounted rate with your existing lender or refinance your loan to an alternative lender ensuring your rate is market competitive and extra savings put in your pocket.

A simple loan health check request with one of our brokers will see an analysis provided on your current financial position and recommendations provided for growth and wealth creation.

Understanding What Refinancing a Home Loan Is

In the simplest terms, refinancing your home loan means that you replace your current mortgage with a new one, typically for a better rate, additional flexibility or you’re just not happy with your current lender. Refinancing is very common no matter if mortgage rates are going up or down, and you can do this from any lender you choose, even your current lender if it’s a new product you’re after or a better rate.

The most common motive to refinance is to obtain a better rate however many people also refinance their home loans as they are unhappy with their existing lender or to release equity, also called a ‘cash out’. This could be to fund home improvement, use their home equity to pay off debt, clear their outstanding mortgage payments more quickly or even purchase an unencumbered security. The whole process is usually more efficient than a traditional mortgage, and you won’t have as much paperwork to worry about. 

Common Reasons to Refinance Your Home Loan

If you’re curious as to why you would want to refinance their loan, we’ve picked out the top reasons below.

Reduce Your Loan Payment

If interest rates have dropped since you got your original loan, refinancing could help you secure a lower rate. In turn, this can reduce your monthly payment amount and the amount you will pay over the full term of the loan.

Release Equity

Once you have had your home for a while, by making repayments and appreciation, you create equity in your property. A common reason for releasing equity is renovations. You may want to renovate certain areas of it for maintenance and to increase its value. You can do simple renovations like adding a new kitchen, solar panels, a pool or an air-conditioning unit, or you can opt for structural renovations, such as taking out walls or adding another level to your home.

Your available equity is subject to a valuation by the lender, your available equity is the difference between what you owe the lender and 80% of the valuation price. For example, if you have a mortgage of $1,000,000 and the value of your property is $1,500,000, 80% of $1,500,000 is 1,200,000. The difference between $1,200,000 and your mortgage of $1,000,000 is $200,000, meaning you have $200,000 available equity to use. It is important to know, should this entire $200,000 of equity be requested for use, it is essentially like topping up your loan, this $200,000 gets added to your mortgage meaning you now owe $1,200,000.

Consolidate Debt

People often refinance their home to consolidate other debts, such as loans or credit cards. Considering home loans usually have low interest rates, it is financially beneficial to consolidate any loans or debt you may have with higher interest rates. Rather than having separate loans active with different interest rates and different repayment amounts and frequency, not only will you be saving money but combining them into your mortgage means you have one loan amount, one interest rate and one repayment amount. Your refinanced home loan will include the original amount of the loan plus, whatever extras you took out to pay off your debt. *Subject to available equity

Ability to Pay More Each Month

If you can afford to pay off more of your loan each month, this shortens the overall life of the loan. It can save you money in interest payments. You can do this by refinancing for a shorter loan term, for example moving from 30 years to 25 years. Not only will this speed up the time it takes you to pay off your home loan, however also creates available equity much quicker than a typical 30 year loan term.

Refinancing Home Loans Evaluation

When you sign up and fill out the paperwork for a refinancing home loan, you’re getting a new loan with new terms. This means that you have to go through the same process as you would with a traditional mortgage when you apply for it. Lenders evaluate you on three main categories:

1. 3-6 month repayment history on the loan/s being refinanced

2. Employment and income history

3. Assets/Liabilities and credit score

While the process is less conservative than a purchase loan, you’ll still have to go through the traditional loan application process to show your lender proof of your income, assets/liabilities and a healthy credit score.

Also, the home you want to refinance must go through the valuation process in order to get the home’s current market value. To avoid paying Lenders Mortgage Insurance (LMI), you’d want your loan to be no more than 80% of the valuation amount.

Steps to Refinancing Your Home Loan

Once you’ve spoken with our mortgage and finance brokers and agreed it is time to refinance, there is a process and steps our brokers will initiate. There are seven of them, and most of them are self-explanatory. The steps are: 

1. Find out the cost of your current home loan

2. Ask if your current lender can give you a better rate

3. Find out how much it’ll cost to exit your current loan (only apply when breaking fixed loan terms)

4. Compare different home loans to match you with the most suitable

5. Apply for your new home loan and submit your paperwork

6. Discharge and exit your current home loan

Contact Our Office for Refinancing Home Loan Help Today! 

Our staff have years of experience in helping our clients find the best refinancing home loan for their needs. We can guide you through the process and help you pick out one that exceeds your current one. Reach out and contact us today for more information or questions! We’re happy to help in any way we can. Contact us on on 02 9121 6247 or submit your scenario online.