Although refinancing your mortgage for a better rate, a new lender can be attractive, it doesn’t always make sense. Sometimes not refinancing is a better option, just yet. Here are some main reasons why refinancing not work.
Are you selling soon?
If you are considering selling your property soon, then refinancing may not be the right solution. The time taken to get you through the home loan process and settlement, the possible fees incurred may not work in your favour. Your sale will hopefully cover whatever you owe on the home, so refinancing right before selling usually isn’t the best option.
When fees outway the benefit
The biggest hurdle you’ll encounter comes in the form of fees. Your current lender will charge you some discharges fees and your new lender may also charge application, settlement, valuation, and other fees associated with your new loan. It’s important to work through these fees to see if monthly fees and possible Lenders Mortgage Insurance you may have to pay maybe a sticking point.
Some homeowners find that the hassle associated with refinancing their mortgage isn’t worth it when they see the fees that impact their total savings. Be sure to speak with a specialist who can compare these fees for you.
If you are currently on a fixed rate, the cost of refinancing may not be of benefit yet. In essence, a break cost is a penalty fee paid by you, the customer, if you choose to close their fixed-rate contracts before the maturity date. This break cost covers the costs incurred by the bank from having to service the money they borrowed from the wholesale money markets to fund your loan.
Financial Hardship
You also wouldn’t want to refinance if you’ve run into recent financial hardship. If your credit history has taken a dive or if you’ve lost your job, it’s extremely unlikely that a new lender will give you friendlier terms than you currently have.
When you are ready, what is the best way to go about refinancing?
We believe that knowledge is power and when you are ready to refinance that you should be armed with the steps to achieve your goals.
There are 7 effective steps to refinancing your home.
1. Consider the costs in refinancing your home loan?
Check your home loan statement or internet banking to find out what interest rate you are currently paying.
2. Does your current bank offer a better deal than what you’re on?
Have made all your repayments on time? Then, you may just be the type of customer your lender wants to keep.You could even tell then that you are looking to refinance.
Even if your current lender offers you a better interest rate, you should still complete a thorough research to make sure that it makes sense to stay with them instead of finding a better deal somewhere else.
3. How much does it cost to close your home loan account?
This usually isn’t more than a couple of hundred dollars, so it shouldn’t seriously eat into your refinancing savings. But you should still check to see exactly how much you’ll be paying.If your interest rate is fixed, you’ll definitely need to check the break costs for leaving your loan before the term is over. This can be significant costs especially now when rates are currently so low. We have seen break fees that run into the tens of thousands but could be as low as a few hundred dollars. The best way to find out is to simply call and ask. If you are on a fixed rate, be mindful to ask when your fix rate expires.If you had a low deposit when you took out your loan, it would be assumed that you paid Lenders Mortgage INsurance when you took out the loan, You’ll also want to figure out if you’ll be forced to pay lenders mortgage insurance (LMI) again.
4. Compare home loans available.
Look beyond just headline rates, ensure you compare fees, features and flexibility.
5. Consider the costs of moving to a new lender.
You should now already know the exit costs of your previous lender, nows the time to compare.
Lenders love when customers are ready to refinance from another lender. Refinancing loans are usually profitable loans at lower LVRs from borrowers with a proven repayment track record. They are highly motivated and will sometimes run special deals where they waive fees for refinancers, or even offer cash back offers to assist with the costs associated with leaving their current lenders.
6. Applying for a loan.
Generally, all banks are after relatively similar information for you to provide.Personal info – You’ll need to provide your name, date of birth and contact info. Also, you’ll be asked to produce a valid ID, such as a driver’s licence, Medicare card or passport.
Financial info – You must provide details of your employment, income, assets and liabilities. Lenders will want documentation on this, so you’ll need to have payslips and bank statements ready.
Loan info – Details of your current home loan are required, so your lender can see your repayment history and outstanding loan amount.
Property info – Your new lender will need details about your current property. They’ll want to have a valuation done to assess its current value so they can determine how much to lend you.
7. Paying out your existing loan
This is the easy bit, the new lender will arrange to payout your existing lender and all relevant information including the transfer of mortgage on the title. The date that the transfer of the mortgage from your existing lender to your new lender occurs, it is called settlement day. Congrats! That’s it.
Now just make sure to do a health-check on your home loan every 18 months or so to make sure you’re still getting a good deal. But for now, pat yourself on the back. You’ve likely saved yourself a massive amount of money. It’s not necessary to be refinancing every 18 months, however, it is really important to keep a check on your mortgage and what is available in the market. At the end of the day, it is the biggest commitment for most Australian’s, so if you cannot keep an eye on it yourself, ask a home loan specialist like us to do it for you.
Just because you are not ready now, doesn’t mean you cannot be prepared.
Reach out for a 20 minute discovery call. Knowledge is power and check out the Mortgage Switching Calculator