Tips for refinancing your loan.
Will refinancing, actually help you pay off your loan quicker? Some things to think about when you look at refinancing an existing loan to cheaper rate is the total interest you end up paying over the life of the loan. If you’ve had your loan the last 2 to 5 years and you decide to refinance to get a cheaper rate, you have to take into account that when you refinance most of the time it will be for the full 30 years again. So when if your new repayments lower than previously but now you have to start the term at 30 years how much do you end up paying by the end of the loan? Will the overall interest that you pay on that loan end up being more then what it would have been had you stayed in your existing loan? This is one thing you must consider and people often don’t realise. Its is always best to sit down with your mortgage broker so they can calculate this for you.
When refinancing, you want to set it up so that you can continue paying off the loan quicker, taking full advantage of the cheaper interest rate. One way for you to do this is to continue making repayments based on your current loan repayment. So it would mean you are making extra repayments on your new loan. This mean your loan term will reduce instead of being a 30 year loan term.
Another tip is asking your broker what the assessed rate the lender has calculated your loan at and how much they calculated your repayments in order to approve your loan. The assessment is a buffer rate, banks add about 2.25% or 2.5% to the actual interest, this is gives the lender comfort knowing you can still repay back the loan if interest rates rise. So it means you can actually make this higher repayment. If you ask your broker to setup your repayments at this assessed rates you can save years off your home loan.
So those are two things to think about when you refinance your home loan and whether it is more beneficial, to actually refinance to cheaper rate and whether that itself is going to help you achieve your long term goal.
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