April 20, 2018
Switching to a new loan can be one of the smartest financial decisions you ever make. If you know what you are doing.
You need to know how to refinance so your new loan works for you and your finances. Otherwise, you may end up going through the process, spending a lot of money on refinancing costs, and realising you made a mistake or missed out on an opportunity because you rushed into your new loan without comparing all your options.
Sure, interest rates may be lower than your current rate right now. Or, maybe there are plenty of attractive refinancing rebates and other offers out there to sweeten the deal. But, you’ll gain the most from a new mortgage if you know how to optimise the refinancing process for your individual needs and unique financial situation.
Think of it like this. A rebate could save you a few hundred dollars. A smart refinance, however, could save you tens of thousands in the long run.
Ready to get started? Use these steps to help you refinance the smart way.
- What interest rate are you paying right now?
- When will your mortgage be paid off? Calculate the month and year.
- What features does your current loan have right now that you are using – like a free offset account or a financial package with your lender? And, which do you feel like your current loan is lacking?
- Will you have to pay any exit fees or break costs, for example, if you are leaving a fixed rate mortgage too early? How much would you have to pay?
- What ongoing fees are you paying on your loan? Total them up to help you compare what you could save if you switch to a different loan with lower fees.
When you have all these details written down, you’ll be able to easily see the difference between your existing loan and a new one.
Where a lot of borrowers lose money is they overlook one or two details, for example, focusing on getting a lower rate but neglecting to add up how much the monthly and annual fees of their new loan will eat into those interest rate savings.
Know exactly what you are working with now so you can definitely switch to something better.
For example, if you want to refinance to cover the costs of a remodel or home repairs, you can include the loan for your renovation in your new mortgage and take advantage of the lower home loan rate. You can also pay off existing credit card debt so you can consolidate your debts into one easy payment.
Once you have a total amount of your debt, divide it by the current value of your home. This will provide you with an LVR number that will reveal whether or not you are likely to be required to pay Lenders Mortgage Insurance (LMI). Borrowing more than 80% of LVR, you’ll have to pay LMI again.
If you have to pay LMI when you refinance, you may want to wait and pay down your mortgage until your LVR improves. Paying LMI when you refinance can increase the overall costs of switching your loan significantly.
Now you can start to search the market to see what’s available. Lenders or your mortgage broker can advise you on how to refinance with the mortgage deals you are looking to get.
As you look at how to refinance and get a better deal, be sure to look at what other lenders have to offer. Interest rates, features, and fees will vary, and so will the offers. Knowing how to get what you want includes understanding the risks and benefits and the costs involved with any potential mortgage. This means short and long term.
Perhaps one of the fastest ways to getting the right mortgage is to hire someone who is an expert on how to refinance. A Refinancing Home Loan Consultant can help you obtain a competitive mortgage by providing independent advice on the right deal for your individual needs.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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