The home loan market is constantly changing, and you’ve probably considered refinancing. Refinancing can be a wise move. It may help you secure a more competitive interest rate, access your equity, add features, or consolidate your debts. This all sounds fabulous, right? Ask yourself these questions before you get the ball rolling.
1. Has my financial situation changed since I first applied for a home loan?
A refinance is a brand new loan application. The personal financial data you had to gather the first time around, you will need to supply again. The stability of your income stream, your assets, and all your debts, and expenses will be scrutinized by banks.
It’s important to think about your ongoing ability to pay off your loan. Consider big life changes that will affect your financial situation. These may be starting a family or quitting your job to start your own business.
Alternatively, have you just received a big pay rise or are now an empty-nester? These may also make a difference to your loan application.
2. Will the refinance really save me money?
Negotiating a lower interest rate or consolidating debts may seem like a financial no-brainer, but the fees associated with it can be hefty. Look at all the costs to work out whether you will really be saving money.
Fixed rate loans can be particularly expensive to exit. Leaving your home loan early will usually see you pay some combination of exit fees, application fees, stamp duty or even legal fees. If you’re borrowing more than 80% of the value of your property, lenders mortgage insurance (LMI) may also be required.
Unfortunately, these fees and costs are not usually transferable from one loan to another. Which means you may need to pay them again.
3. Am I planning on keeping the property for much longer?
If you plan to sell your property within the next few years, refinancing might be a rather big investment of time and energy for little benefit. Similarly, if you only have a small amount left to pay off your loan, consider whether it’s really worth going through the process for the marginal cost savings you may receive.
Refinancing can help you save some money, but it’s worth considering your plans and options before you decide to go ahead with it. If you need some support working out what’s best for you, contact us and we will guide you.