Mortgage Refinance: De-Mystifying the Process
There are many reasons to think about refinancing your home loan, especially in the current economic climate. When faced with economic uncertainty or a change of situation, the option of being able to take advantage of the equity of your home is a powerful tool and has given many of those with a home loan the opportunity to create a little more of a safety net or change their finance options to suit their current lifestyle. Apart from a change of lifestyle circumstances, many people go down the route of refinancing for a range of different reasons. No matter how long you have had your mortgage, being able to take advantage of the benefits of refinancing is reason enough to consider it.
Refinancing: How it Can Impact Your Finances
How does refinancing your loan have an impact on your financial situation? Well, there are certain ways that mortgage refinancing can impact on your lifestyle and mortgage repayments. Many who choose to refinance may do so to be able to secure better mortgage rates or even have access to more loan features. Having a shorter loan term is one of the outcomes that refinancing can have. While many people see refinancing as an option for people who may have had a negative change in circumstances, for others it may be the opposite. If you can afford higher repayments, securing a better deal that will help you get your loan paid off quicker is a great way to save on interest. Even if you aren’t able to afford higher repayments, when you look into refinancing with the help of a mortgage broker, they might be able to find savings where you may have overlooked, and that is always a huge incentive for anybody with a mortgage.
Another reason people choose to refinance is to switch between a fixed or variable interest rate. In the case of the latter if you are willing to bear the risk down the track, switch to a variable loan to take advantage of lower home loan rates in the present. For others, the motivation to refinance is to take advantage of the equity of their home. This gives them more opportunity to take out other loans or build additional wealth, giving them greater financial freedom down the track.
One of the biggest reasons people look into refinancing though is to streamline or consolidate debt. Debt consolidation allows you to potentially decrease the amount of interest you are paying, as well as keep track of your debt in a simpler process. This way you can combine any other debt you have with your mortgage. For example, you can consolidate your car loan with your home loan and pay off both together in one transaction. While there are possible downsides to this, it does put all the debt into one basket, giving a more streamlined approach and in most instances will save you money if done correctly.
Ultimately, the perks of refinancing can have a range of benefits such as a shorter loan term, a reduction in your repayments and securing a lower interest rate. If these outcomes sound like something you are interested in, then refinancing may be the solution that you are looking for.
What Does Refinancing Involve?
Whatever the reasons you decide to refinance, the whole process may seem a tad overwhelming. It can be hard to know where to start, so let’s take the mystery out of refinancing and break it down into what it involves and how to get the ball rolling.
Step 1: Do Your Research
First things first, just like with every new service, it is important to do your research. Knowing where you stand financially will help you figure out where you need to go. Reviewing your current home loan along with your other debt is the place to start. Figure out what your budget is and just how much you are paying versus what you can afford to pay. Financing tools, like planning calculators, can help you figure out just how much you can afford to borrow and what your repayments will be. We have some very handy financial calculators available on our website so make sure you access them to make the research and review process that little bit simpler.
Step 2: Shortlist Loan Providers
Once you have figured out where you stand, the next question is which loan provider to go with for your mortgage refinance. With so many options out there, it can be a very overwhelming experience. If your current home loan is through a bank, that may feel like the safest option as that is the most familiar. While it is always comforting to go through an option that you have first-hand experience with, not stepping out of your comfort zone may cause you to miss out on the best refinancing options out there.
Some people choose to refinance their home loan through an online lender, a great alternative for people who just want to get everything done and not have to spend time sitting down with a mortgage broker or bank staff. However, going through an online lender may cause you to miss out on the best options available or being able to negotiate any deals. Online lenders generally only have a handful of options when it comes to mortgages. Also, dealing with automated services can take out any flexibility, so you could end being frustrated by the entire process.
There are many perks to using the services of a mortgage broker. A broker can help you compare all the options, compared to banks where they will be only offering the options from their products. A broker will be able to connect you with the right lender, including most of the big banks, that suits your needs based on your personal circumstances. Brokers may also have loan options that may not be available on the market, especially if your employment circumstances are unique, for e.g., if you get sales commissions or bonuses or if you are self-employed.
A good mortgage broker will present you with options rather than pushing you to go with a particular lender. The Australian Government’s MoneySmart website also has some tips and guidelines for refinancing your home loan.
Step 3: Loan Application
Once you have decided which lender you’d like to go with, a loan application is the next port of call. This is where you will need to present all the right documentation to see what you are eligible for and decide which mortgage rates and refinance options suit your current situation. For this, you will need to provide paperwork that provides evidence of your current incomes and expenses. This includes pay slips, bank statements, details about any investments and a detailed outline of any debts that you currently have. Providing these details will enable the mortgage broker to make an application on your behalf. The good broker will liaise with the lender and present your situation in the best possible way in order to ensure that you get the best deal.
Step 4: Approval, yay!
When all that is said and done, then the next step is approval. Time to celebrate! It is time to sign on the dotted line and switch to your new mortgage, hopefully providing you with either reduced repayments or a shorter loan term. As the market and economy changes over the years and so do home loan rates, it is best practice to keep assessing your mortgage every couple of years and changing lenders if you are getting a better deal.
Considering Refinancing now?
Knowledge is power, so understanding just what refinancing involves helps you get the ball rolling. If you are looking for a little more information on why you should consider refinancing, then head on over to the refinancing section our website to get a more comprehensive breakdown on why refinancing is an option to consider, especially since we are currently sitting on historic low interest rates.
No matter what step you are in terms of refinancing, getting advice from the experts is always a smart way to help you make an informed decision. Speaking to a mortgage broker is a great way to assess your options and see whether refinancing is the right next step for you. A mortgage broker can help you go through your current finances as well as compare your current home loan rates to what else is out there on the market. They can help you assess your financial situation as well and give you a breakdown of just how much equity you have and give you an informed opinion about what to do next.
To pique any curiosity, contact us to see just how much you can save by refinancing and book a no-obligation, free consultation with a mortgage broker. Even if you are not completely committed to refinancing, having a chat with a professional is always the best way to kick off any research and get any burning questions you may have answered.