Home loan interest rates are currently sitting at historic lows following the economic consequences of COVID-19. Holding the cash rate at 0.10%, the Reserve Bank of Australia has indicated that they do not expect lifting it any time soon. As a result, lenders are pushing down their mortgage interest rates, which is a great sign for borrowers.
The changing landscape is the perfect opportunity for borrowers to review their current home loans. They should evaluate whether it is still the most suitable choice for their personal needs and financial circumstances. To take advantage of these low rates and save money in the long run, borrowers are advised to consider refinancing their home loans.
For the uninitiated, you must have questions like, “What is refinancing home loans, and how does it work?” It is the process of replacing your existing home loan with a better option. This is done either by changing home loan products or moving to a different lender.
Refinancing a mortgage can help improve a borrower’s financial situation in many ways. For one, a borrower can get a loan with a lower interest rate. It also gives the borrower an opportunity to add better features more tailored to their situation.
Refinancing also improves the borrower’s financial situation by reducing mortgage repayments and combining existing personal debts such as credit cards, personal loans, and car loans. Also, a borrower gets to have access to the equity in their home.
Now that we’ve established what refinancing is, let’s get to the top reasons why you may want to refinance your home loan. As a rule of thumb, it’s important to periodically check up on your loan and not view it as a one-and-done deal, regardless of the housing market’s trends or the economy. Bear in mind that your personal circumstances may evolve as years go by.
Your income may rise or decline, or you may want to undertake home renovations. Perhaps you may even purchase another property. These circumstances are a great opportunity for you to reassess and update your home loan.
You may have to pay more if you set and forget your loan. For all you know, your existing bank may offer sharper pricing while their competitors provide cheaper and more suitable options. You don’t want to fall into paying a lazy tax or the extra costs you pay on your existing debts because you have not kept up with the latest offers in the marketplace.
So, if you’re looking for a better interest rate or new features and add-ons such as loan splitting, redraw facilities, and flexible repayments, then go ahead and refinance your loan. If you want to use the equity in your home to renovate, then it’s a good enough reason to refinance your loan.
To support the points above and to help you make an informed decision, it’s worth mentioning that refinancing mortgage is ideal if you’re coming to the end of a fixed-rate term. This is when you can get a more flexible home loan or a better interest rate. Refinancing also works if you’re looking to consolidate debts into your mortgage so you can easily manage your finances.
Should you want to access the equity in your home and use those funds to invest in property, shares, or other wealth-building opportunities, refinancing your home loan may provide you with potential tax benefits. Ultimately, the choice is up to you and your current financial situation.
In this section, we’ll walk you through the process of refinancing an existing home loan.
Assess your home loan
The first step to refinancing mortgage is assessing your current loan. Think about what you like and don’t like about how your loan is structure and provide a benchmark against which to compare other offers. This makes it easier to find the right loan for your needs.
Consider the strengths of your current home loan, like the things you like about your current lender. Do they offer a great online experience? Perhaps you like being able to access banks.
Figure out what works for you to help you determine what to look for in a new lender. Also, know the types of interest so you can decide if you should move from a variable to a fixed interest rate. Lastly, understand your options before making a decision.
Compare home loans
At this point, you probably already know what to look for. That means you can now start comparing loans. You can do this with the help of a qualified mortgage broker.
Mortgage brokers will use their experience, market knowledge, and connections to help you find a home loan that is most suitable to your needs. The great thing about working with a mortgage broker is that they may be able to offer more tailored recommendations if you can share your financial situation.
Calculate the costs
The next step is to research any fees you may need to pay to exit your current loan. Also, read about any upfront costs associated with your new loan. If you need to work out exactly how much it will cost you to refinance your home loan, then tap the services of a mortgage broker.
Whether you’re refinancing with the same lender or moving to a new one, the fees may not be the same. Your current lender may be able to waive some of the fees if you’re staying with them.
Apply for a loan
You will then need to make an application to your lender once you’ve chosen a new home loan. You can do this over the phone, in a branch, or via your broker. If you’re using mortgage broking services, your broker will work on the application on your behalf.
Suppose your application is now pre-approved. Your lender will then perform a valuation on your property to determine how much it’s worth. This process typically takes up to a week.
You will then receive a mortgage contract pack once your application has been formally approved. This pack includes mortgage contracts, direct debit forms, terms and conditions booklet, mortgage of land forms, and a discharge form.
Regardless of your needs, Key Strategy Solutions is here to help you find the best loan for you. We will guide you through the entire refinancing process to save you both time and money. Consult our team for more options on refinancing mortgage.