As interest rates continue to drop, many Australians are getting savvy when it comes to managing their mortgage finance. The mortgage refinance market is expected to grow 30% in 2016 compared to the year before, as demand for a better deal outweighs consumer loyalty. But refinancing your home can be tricky; just because you see a better rate, doesn’t necessarily mean you’ll save money by switching. To help you make an informed decision about refinancing your mortgage, here are some of the important things you need to think about.
Why refinance?
There are a number of reasons why you might consider refinancing your mortgage; you may want to move to a new lender, switch between variable and fixed interest rates, have flexibility in your terms or length of loan, or get on top of debt by consolidating. Refinancing is a great way to access lower interest rates, more product features, and better customer service.
Has your financial situation changed?
Over the years your income and outgoings may have changed. Perhaps you have another dependant in your family or your credit card limit has increased. You may have outstanding debt or have gone through financial difficulties. All of these changes to your financial situation can impact on your borrowing power and credit history.
How far into the loan are you?
If you’ve already paid off a considerable portion of your loan, refinancing to a longer term will reduce your payments in the short term, but will cost you in the additional payments over the years added on. Remember also to weigh up any prepayment penalties against the savings you could earn on refinancing, as you could end up incurring more costs when exit and other admin fees are included.
Read the fine print
It’s easy to be dazzled by “honeymoon rates” that draw borrowers in with super low introductory rates lasting only a short period. While this type of rate can make it easier for borrowers in the short term, when the honeymoon period is up you may be locked into an uncompetitive rate with early termination fees if you do decide to change lenders again. Consult with your mortgage broker to ensure you understand all of the terms before committing to anything.
Your relationship with your existing lender
If you’ve built up a good relationship with your existing lender, chasing a small reduction in interest rates could end up costing you more in the long run when moving to a new lender. Consider approaching your current lender as many lenders will go to extreme lengths to hold onto good clients, by waiving fees or negotiating interest rates. And prepare for a meeting with your lender by ensuring you’ve made all of your payments on time, and have made an effort to pay off as much of your other debts and credit cards as possible, in order to present your best financial.
Shop around
It goes without saying that shopping around will provide you with the most choices and the best options. Don’t limit yourself to just one bank lender; working with your mortgage broker, you’ll have access to several lending options as well as an unbiased viewpoint on the best offer out there.
Think long-term
Before refinancing, consider your circumstances over the next three years. How long will you be staying in your home? Moving house shortly after refinancing could mean you’re not able to take advantage of the cost savings in refinancing.
Talk to us
It’s a good idea to get a home loan health check every three years, as refinancing and new home loan features could save you a significant amount in repayments. If you are considering refinancing your home loan, get peace of mind and find the right financial option to suit your lifestyle by getting in touch with a Mortgage Express broker.
