REFINANCE

Looking to refinance your current home loan? With interest rates at the lowest they have been in over 50 years, it is well worth exploring!

It’s important to work out before you start what you want to achieve by refinancing. Are you looking to… Save money? Increase flexibility? Reduce risk?

Understanding your motivation will make it much easier for your broker to find you a home loan that meets your needs.

  • Access Equity
  • Debt Consolidation
  • Obtain a Better Rate
  • Fixed Rates

In Focus

Equity

When refinancing, understanding your equity is a key principal you should be across.

Equity is the difference between the value of your property and how much you owe on it.

Let’s do an example:

Your home is worth $565,000 and you have $265,000 remaining on your home loan. This means you have $300,000 worth of equity.

However, it’s important to note that not all of this equity will be accessible. Typically a lender will enable you to borrow up to 80% of the property’s value without charging (or recharging you) for Lender’s Mortgage Insurance (LMI).

Based on the above example, 80% of the property’s value is $452,000. If we take away what you currently owe ($265,000), the equity you can access without incurring LMI would be $187,000.

Your equity will grow over time as you pay down the loan and the value of your property increases.

It is possible to unlock this equity in your property for a wide range of purposes pending your financial situation. Possible uses may include: buying an investment property, renovating your home, paying your kids school fees, consolidating your debt, purchasing shares or building your investment portfolio, or even buying a new car or going on a holiday.

As home loan interest rates are typically cheaper than other forms of credit, accessing your current homes equity could be a solution to consider.

If you want to chat to someone about your circumstance, you can give us a call on 1300 135 456, use web chat or fill in our contact form and we’ll give you a call when it’s convenient to you.

Loan Types

When refinancing your home loan, you have a myriad of options available to you pending what you are looking to achieve. Here are a few options that may be relevant to you.

1

Interest Only Loan

As the name suggests, this type of loan is where you are only paying the interest on the principal balance each month. The principal balance of the loan remains unchanged. An investor typically uses this type of loan as it allows you to minimise your mortgage repayments in the short-term. If you are refinancing to turn your current property into one you rent out, this could be an option to consider.

2

Variable Loan

A variable rate loan is the most common loan type used when refinancing a property. This is where the interest rate on the home loan fluctuates over time as market interest rates change. As a result, your monthly payments will vary over the term of the loan.

Ask a Broker

As someone wanting to refinance his or her home loan, this means you’ve been through this process before! Hopefully that means it’s not as daunting this time around.

Assuming it’s been a while since you took your original loan out, the home loan options available may have changed. Also, as this time around you will be financing for a different reason, it’s possible you will need different features or set-up of your home loan.

It’s therefore important to ask your broker questions about refinancing to ensure you fully understand your options.

  • Will I need to have my current property valued?
  • Are there any exit fees on my current loan?
  • What are the fees and charges associated with a new loan?
  • What home loan features are available?
  • What’s the timeline on refinance approval and settlement?
  • If I want to access the equity in my home do I need to declare what I’m doing with these funds to the lender?
  • Will I need to pay Lenders Mortgage Insurance (LMI)?
  • Can you compare my current loan against others?
  • What paperwork will be required?
  • Can I stay with my current lender? Or should I move?

Ask yourself

There are also some questions you should ask yourself. This will help you provide information to your broker so he or she can put together home loan options that will suits your needs.

  • What are your current interest rate, monthly repayments and time left on your loan?
  • How much do you have left to pay on your current loan?
  • What features do you currently have? Do you use them?
  • What is the purpose for refinancing your property?
  • Are you buying another property?
  • Do you want to consolidate any debt you may have with this refinance?
  • Are you going on holidays or buying a new car?
  • Do you have school fees to pay?
  • Are you renovating or extending your home?
  • Do you need a line of credit?
  • If you’re looking to save money, what do you want your new monthly repayments to look like?
  • Are you looking for a fixed rate loan?
  • Do you want an offset account or the ability to redraw funds (or both)?
  • Is it important that your lender also looks after your personal banking?
  • Are you unhappy with your existing lender? If so, would you be prepared to look at alternatives?

Dictionary

Re-amortisation – Re-amortisation occurs if when refinancing your loan you reset the loan term back to its original period. e.g. the original loan was for 25 years, you’ve been paying the loan off for 5 years already, however when refinancing you revert back to 25 years instead of 20 years. The likely outcome of this is your minimum monthly repayments will reduce, saving you money in the short-term. However, the watch out is that you will pay more interest across the overall loan term due to the additional 5 years. Make sure you chat to your broker about your circumstances.

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