Thinking Of Refinancing Your Home Loan?
Give Ace Capital a call today and we'll evaluate your situation and advise you on the best step moving forward with regards to refinancing your home loan
Health care professionals advise their patients to have a full health check-up frequently, usually at least once a year.
Because health conditions change; new drugs and therapies are invented; changing lifestyles may add new health risks.
That analogy is also true for home loans: They need to be reviewed periodically - perhaps not every year, but definitely several times during their lifetime for sure.
Read on to find out why; and how you might stand to benefiting from doing so.
Why Do a Refinance Review?
With the Reserve Bank of Australia (RBA) setting interest rates at historical lows (and even cutting them further), now is a great time to review whether refinancing your current home loan makes sense.
- Your current loan may be carrying a legacy (higher) rate of interest
- There may be better mortgage product offerings available now that make it advantageous for you to refinance
- It might be beneficial for you to consolidate other forms of debt, that you may have accumulated over the years, into a refinanced home loan deal
- The term of your current loan may be coming to an end, and you need to negotiate a new deal
- You need additional financing - perhaps for home renovations or expansion - which could change the terms (to your benefit!) on your existing mortgage loan
Regardless of what your reason might be for doing a refinance review, it's always a win-win for the borrower: If it saves you money, you can proceed with a refinancing.
If it's more expensive than your current mortgage arrangement, you can always stay with your current mortgage lender.
Making The Switch - Consider Home Loan Rates
Taking the plunge and doing a refinancing deal is often very difficult, especially if you have a great relationship with your current Melbourne home loan provider. However, it could be worth the while to make the switch.
- Your Needs: Start off by assessing what your refinancing needs are.
- Is it primarily to get lower interest rates?
- Is it that you need better features?
- Are you looking for more flexibility paying off your loan?
- How much money do you need?
Understanding your need to refinance will help you select the best refinancing options from amongst an available array of products.
Your Options: Mortgage lenders are always eager to get your business. However, that doesn't mean that you should go out and opt for the first refinancing deal that comes your way. Do some research and compare various options against the needs you highlighted in Step 1 above.
Some of the options may be attractive (great features, excellent rates) but might not suite your lifestyle (down payment requirements, inflexible repayment choices). Be sure the deal you choose also fits well with your overall financial situation: Can you afford it?
The Costs: While the Australian government banned Exit fees, charged by Mortgage lenders on variable rate loans, back in 2011, there are still a whole slew of other fees and costs that you need to be aware of:
- Start-up Fees
- New Loan Establishment Charges
- Settlement Costs
- Breaking Fee (if you break your current fixed rate contract)
- Switching Costs (if you plan to switch from one provider to another)
- Solicitor, Tax specialist or Conveyancer charges (if required)
In addition, there are other fees and charges mandated by the government that everyone should be aware of. Beware of just interest rate comparisons, which most borrowers tend to use when comparing options. Instead, use the "comparison rate", which comprises of all the associated costs, fees, short-term "special offers" and introductory rates.
The cost of your refinancing must be considered after you include all of the applicable fees and charges.
The Application: Once you have selected the refinancing option you want, it's time to make the application. Depending on the lender of your choice, you may have multiple options to apply for the loan:
- Combination of Online and In-branch
- Over the phone
- Mobile lender
Be ready to present all of the required documentation needed by the lender to process your request successfully.
In addition to proving your identity and address, you may also need to supply the (new) lender with a copy of your most recent mortgage statement from your existing lender.
In some cases, the lender might insist on conducting a property valuation to validate the current worth of your home. This is "standard procedure" if you are refinancing with a new lender. However, before signing any documentation you should consult a solicitor or licensed Conveyancer to ensure the contracts are all in order.
The Settlement: Upon signing of the appropriate documentation, the new home refinance loan is drawn down. This may also involve using the money from the refinanced loan to pay off the existing loan. As part of this settlement process, you'll also receive a "Discharge of Mortgage" document from the Land Titles Office of your Territory or State.
The Case Against Refinancing
While refinancing your home loan might often make sense, you should be aware of some situations where it might not be right for you.
This might be true if:
- You plan to sell your home in the very near future
- The penalties on your current home loan are too high if you refinance
- Your credit history has significantly deteriorated since you took out your current mortgage
- You intend to redraw on the available equity in your home as a result of a really low loan balance (or if you've have taken a reverse mortgage out on your home)
It might also be advisable to consult a qualified tax professional if you intend to use refinancing as a tool to secure investment finance.
Under existing Australian tax law, you might not be eligible to claim any expenses incurred as a tax deduction while you rent the property - unless the money is borrowed against that investment property.
You need to factor in the tax savings from such a move, against the refinancing costs, before making a judgement as to whether refinancing is the right move.
To find out more about how Ace Capital can help your with your finances (not just home loans, but business loans and more advance finance products) contact us today for your free evaluation & consultation.