Is it time to Refinance?

Is it time to Refinance?

Is it time to Refinance?

Refinancing your home could significantly reduce your monthly mortgage repayments. Dropping the interest rate you pay by 0.5% on a $500,000 loan over 25 years could save you more than $100 every month and more than $30,000 over the life of the loan.

It's very easy to organise a house loan and put it in the 'set and forget' basket. When the 'cash' interest rate changes, the lenders can choose to pass on those increases or decreases to their customers. Over time, your current rate can become out of sync with the RBA's cash rate. Don't pay the lazy tax!!

Five things to consider before refinancing:

1. What are the costs involved to refinance from one lender to another?

You may have discharge fee's, government charges and establishment fee's. These are generally fixed amounts and doesn't change depending on the loan amount. Also, if you are in a fixed term the breaking costs can be significantly higher than a variable loan.

2. Will I have to pay lenders mortgage insurance (LMI) again?

Generally, if you borrow more than 80 per cent of the value of the property, you will need to pay LMI. If your property has increased in value since you purchased it you maybe refinancing less than the 80 per cent limit and avoid the extra cost. In the first year most mortgage insurers will refund 40 per cent of the mortgage insurance if the loan is discharged. If it is in the second year this goes down to 20 per cent.

3. Are you extending the loan term to get a lower repayment?

Make sure the monthly repayment isn't significantly lower because of an extended loan term. If you started at 25 years and are refinancing after 2 years you are going back to square one if the refinanced loan is for 25 years. Try and continue the loan at your current year into the loan. If you extend it back to the full term you could be adding thousands of dollars back into the repayments.

4. Are you removing important features and benefits?

Paying a higher interest rate sometimes isn't bad if you get extra features and benefits that would outweigh the extra cost in the percentage difference. Offset accounts which can help you reduce your interest payments is a good example. Credit cards, no fee transactions, unlimited deposits and withdrawals can also influence the best loan and rate for you. If you have these and are not utilising the benefits then you could change to a basic, no frills loan.

5. Are you eligible for that rate?

Lenders will advertise a sharp rate to get your attention and to prompt an inquiry. Understanding the requirements to fit that loan and to get that rate is important. We see all sorts of marketing idea's with mortgages, holidays and cash backs of $1000's are common. Again, you will need to fit their criteria to be accepted.

The current loan market is highly competitive, with offers to suit all kinds of borrowers. Interest rates are historically low, if you have been thinking about finding a better deal, don't put it off any longer. Contact John to see what options are available - 0412282330.