I like to think I’m a fairly positive person, so what I say next might contradict that.
Owning a home is not a walk in a park.
Scrap that – being a self-sufficient adult is not a walk in the park.
I know that when you turn on the TV or walk down to Westfield, and you see all of those images of happy homeowners in ads for home loans, you’re thinking, “Wow. Home ownership is easy for some. Just look at how happy they are!”
But…they’re not real people.
The people in those photos – the models – likely have the same anxieties that you do.
Am I saving enough?
How can I pay off my mortgage quicker?
Is buying a house in Sydney even a good idea?
So I wanted to bring up property refinance today, but not as the solution to all of your problems. Think of it as one way that you can begin to reshape your financial future.
Why refinance a mortgage?
When you first took our your home loan, you likely spent a long time deciding which home loan was right for you at a competitive interest rate.
But…people’s needs change. And the mortgage market is forever changing, not to mention, the interest rates!
They’re currently at an all time low of 1.50%.
Needless to say, your current mortgage might not be up to scratch anymore.
Or perhaps you’ve hit a financial block, and you’re finding it hard to spend money on important things. Like your family’s future, or even a holiday away down the coast.
Whatever your reason, you want to be saving money on your mortgage and paying it off faster, not spending over 50% of your pay check on the walls that keep your family together.
The other aspect is that unfortunately lenders don’t look after their existing customers. The best rates are only offered to new customers. I bet if you went on your lenders website they’d be advertising better rates than what you have.
Vote with you wallet and let them know that this isn’t okay.
How does refinancing work?
You could be able to:
- Save money on interest rates
The rate shouldn’t be the only thing you think about, but a lower interest rate or different interest rate type can help put more money in your savings account.
- Access more beneficial features
Other money saving features you could be enjoying include an offset account, the opportunity to pay a little extra every month and the option to responsibility redraw on any extra payments.
- Consolidate your debt
Got too many loans spread across a variety of accounts and lenders? It can help to have it all in one place, where you can pay just one interest rate and one monthly payment. Plus, home loan rates are generally far lass than credit card rates!
But be warned, debt consolidation means you could be turning short-term debt into long-term debt. Unless you plan to make extra repayments and pay off your mortgage faster, I don’t recommend combining credit card debt with mortgage debt, as you could pay more interest in the long-term.
- Invest and build your property portfolio
When you refinance your mortgage, you get the chance to access what we brokers call ‘equity’. This is the difference between the value of your home, and what you have left to pay on your mortgage.
For example, if your home is worth $800, 000, and you have $400,000 left to pay on your mortgage, the home equity you can access is $400,000. You can use that money to invest in another property, build up your share portfolio, or invest in managed funds. But there are also a number of risks to consider that can’t be covered in the brief scope of this post.
What to do before you make a decision
Step 1: Assess your credit score
You’re essentially applying for another loan here, so first thing’s first. Find out what your credit score is like.
Step 2: Know how much your can borrow
This will be influenced by a number of factors, like your current income, and your other financial commitments.
Step 3: Know your home loans
You’ll know this from when you first applied for a mortgage: there are literally hundreds of mortgages to choose from. This is where a mortgage broker comes in handy. They’ll be able to fill you in on interest rates, how to suss out lenders and mortgages, what questions your lender will test you on, and how to avoid mortgage stress.
Step 4: Weigh up the pros and cons
Refinancing is a great way to save money, reach your financial goals faster, and enjoy your hard-earned money. But it’s not right for everyone, and you need to make sure it’s the right financial move for you.
Costs to think about include:
– Applications fees to cover all that paper work.
– Valuation fees to determine the true value of your home
– Settlement fees from your new lender for you to switch lenders.
– Lender’s Mortgage Insurance premium, if your new loan is more than 80% of your home’s value.
– Exit fees from your current lender since you’re saying goodbye early.
– Break costs on fixed rate home loans.
– Mortgage registration fees to let the State Titles Office know you’re switching lenders.
How to refinance a mortgage
Decided that refinancing is right for you?
Here are the steps I personally take my clients through. As you can see, it’s pretty straightforward and easy.
- Listening with empathy
A good mortgage broker will listen to your needs. It’s our duty to make sure you don’t end up in hotter water, so we’ll tell you which mortgage is right for your circumstances and financial goals. This process generally takes an hour if we’re provided with everything we need beforehand, such as pay slips, rates notices and strata notices if applicable.
- Application time
With your needs in mind, your mortgage broker will help you select an appropriate lender and mortgage. We’ll help you get the application forms all ready and in tip-top shape.
- Break up with the bank
If only everything could be outsourced. Luckily, we can do the dirty work for you, and let your lender know you’re going elsewhere.
- The payout
Once the new lender receives a payout figure from your old lender – that’s how much is left owing on your mortgage – your new lender will pay off this amount. The title deeds to your property are then transferred to your new lender.
Your new lender will lodge a Discharge of Mortgage with the Land Titles Office in your state or territory.
- Start your new financial journey
After all the paperwork’s out of the way, you begin making the new repayments with your new lender, enjoying a new interest rate, loan features and benefits and extra money in the bank! Reducing an interest rate by 0.5% on $300,000 is approximately $1,500 saved per year. That’s a return flight for two to sunny WA from Sydney!
Not sure if refinancing your mortgage is right for you?
A good mortgage broker will recommend you review your home loan every three years to ensure you have the right mortgage for your particular needs.
Feel like you’re due for a financial checkup? Book in a session with me – it’s easy. No obligations, no strings attached.