Home loan not up to scratch? Looking for a better rate? Or do you want to unlock equity? Then refinancing could be for you. But there are some important questions to ask first.
If you’re considering refinancing your mortgage, you’re not alone.
With the rising cost of living and interest rates hitting the hip pockets of many Australians, it’s a popular move.
According to ABS data, November 2022 saw refinancing values reach a record high of $13.4 billion.
Refinancing may offer you opportunities to unlock equity, land a better rate and avoid what’s known as “loyalty tax”. Sticking to the same loan could see you missing out on favourable rates and features lenders like to use to woo new customers.
Or maybe you’re about to come off a fixed loan period and are bracing for a potential rate hike.
Whatever your reasons for refinancing, we’ve got some questions to help you through the process.
What’s your financial picture?
Banks want to take a squiz at your financial profile before lending you a chunk of change. So check that your credit score is healthy to avoid disappointment.
Look at your budget to see how much you can afford to pay toward your mortgage.
Include interest, repayments, and service fees. And factor in possible additional refinancing costs such as application and valuation fees.
You can also consider how the length of your loan impacts your budget. A longer-term loan usually comes with lower repayments but more interest over the lifetime of your loan.
A shorter-term loan on the other hand would usually mean you make higher repayments now, but you could save on total interest payments.
Whichever way you’re leaning, we can help you crunch the numbers.
Do you have equity?
Having 20% equity in your home is typically a lender requirement when refinancing.
But what is equity?
It’s the difference between the market value of your property and the balance of your mortgage. And with the recent decline in property values, it’s an important thing to check.
The 20% equity typically acts as a deposit. Not having 20% may mean you have to pay lenders’ mortgage insurance, which may make refinancing not worth your while.
And negative equity – when your mortgage balance exceeds your property’s value – would most likely put the brakes on refinancing plans.
But if you have additional equity you may be able to unlock it when refinancing.
Let’s look at an example – say your house is now worth $1 million. But you bought it for $800,000 a few years back with a $600,000 loan that you’ve paid down to $500,000.
Banks typically allow a loan for 80% of a property’s market value (depending on your financial position and other factors). So if you refinanced your $500,000 loan to an $800,000 loan, that could unlock $300,000 for things like reno projects or investments.
What are you looking for?
Now it’s time to think about what you want from a loan.
A better interest rate is usually top of the list. But what other features could benefit you?
An offset account may be something you want to reduce interest. Or the ability to make additional repayments without incurring penalties.
Depending on what you’re after, you may not need to move to another lender. We can always talk to your current lender first to see if they will come to the party.
If not, we can then explore your options further afield.
Get in touch
Want to refinance to unlock a better interest rate, features and benefits, or equity in your home? Give us a call.
We can help assess your situation to see what’s possible. And locate loans and lenders that are a great fit for you.
Refinancing your home loan for debt consolidation
Another method people use for debt consolidation is rolling it into a refinanced home loan, because mortgages offer comparatively low-interest rates.
So if you’re really struggling with multiple debts right now – such as a car loan or a number of credit cards – consolidating your debts into your home loan will, in most cases, reduce your overall monthly repayments.
However, here’s a big word of warning.
While this option can reduce your monthly repayments now, debt consolidation through your mortgage can turn a short-term debt (like a personal loan) into a much longer-term debt.
As such, unless you aim to make a lot of extra repayments as soon as possible, you could end up paying significantly more interest than you would have otherwise.
One way to address this issue is to create a loan split for the debt consolidation, giving you the ability to pay off all the short term debts within a few years, rather than, for example, over a 25-year home loan period.
So if you’re in need of breathing space now, debt consolidation is an option to consider – especially with mortgage rates so low at present due to the RBA’s official cash rate being at record low levels.
Get in touch today
If you’d like to explore your debt consolidation or refinancing options, then get in touch with us today and we can help you look at ways to take some financial pressure off your shoulders.
It’s also worth noting that lenders are providing mortgage holders impacted by COVID with a range of hardship support measures, including loan deferrals on a month-by-month basis.
Whatever your circumstances, we’re here to support you however we can through these times.
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