Things to Consider Before Refinancing Your Home Loan

Undoubtedly, nearly every second Australian homeowner is exploring refinance home loans Melbourne or speaking to a home loan broker Melbourne during the ongoing pandemic. True to this, between March and June 2020 over 19,000 homeowners with ongoing mortgage loans refinanced their home loans with a different lender and the value of these refinanced home loans amounted to about $9 billion, according to Australian Bureau of Statistics. In fact, this flurry of activity from homeowners even had the support of the Reserve Bank of Australia, with the governor urging mortgage holders to shop for better rates. The governor even suggested that if a current lender is not willing to consider a lower rate, the homeowner should approach a competitor.

In some instances, the switch helps in some savings on the mortgage repayments. Refinancing also home loans Melbourne comes in handy for homeowners seeking to consolidate their debt including credit card dues and personal loans into the mortgage. Further, this could also be a good time to speak to your financial advisor and examine your variable-rate home loan or fixed-rate mortgage loan whose term is nearing its end and get his advice how best you can gain from the ongoing situation.

Before you decide to avail refinance home loan Melbourne, here are a few things to consider.

Consider the loan type and interest rate

The RBA states that there has been a fall of 0.34 % in the average variable interest rate and a fixed rate for owner-occupier fell by 0.45% in 5 months ending June 2020. Going by this, it does make sense for homeowners to consider switching their mortgage to another lender. However, it is essential that you compare the interest rates and ensure that the numbers payout in your favour. Presently, we are seeing the interest rates pegging below the 3% mark with some lenders going below even the 2% mark. But, importantly, you should understand the difference between a variable rate and fixed rate and what works best for you. Though many homeowners choose fixed-rate mortgages, it may not be your best option if you plan to sell your home during the tenure of your fixed-rate mortgage. When such a plan is not in the pipeline a fixed-rate mortgage usually gives you some certainty with regard to budgeting since your monthly repayments would be firm across the tenure of the mortgage.

Determine features that are important for you

Before refinancing it is desirable that you evaluate your precise needs from the home loan and if they are:-

• Saving money
• Paying off your loan sooner
• Use potential savings to offset the balance in your home loan account

Once you have determined these, you can figure out what features matter to you.

• Low fees
• Lower interest
• Paying off the loan sooner
• Offsetting your savings
• Package (consolidating your other debts)

Although you may not need all these, it is still desirable that you examine all these in greater detail.

Do not extend the mortgage

In many instances, homeowners seeking to refinance their mortgage loan end up extending the tenure of the loan without even knowing it. The new lender gives you a glossy picture showing a reduced monthly payment and never whispers that there is a fine print and that you would continue making the monthly payment for an additional year or two. When you extend the tenure of your loan, instantly you are attracting additional financial burden as opposed to saving some money by taking advantage of the present interest rate regimen. Therefore, consulting a professional home loan broker Melbourne or a financial adviser is always desirable before signing on the dotted lines on any document that has a financial impact on you.

Charges and fee

When you decide on refinancing, always check the charges and fees that are offered by the new lender as well as the old lender. A new lender can charge upfront fees while the old lender may not let go of the charges and fees due to them and you always have an opportunity to negotiate such charges. For instance, you can ask the new lender if the upfront fees can be waived. You can let the new lender know that you are talking to other lenders too and would sign up for what is most beneficial to you. With competition raging, chances are that your new lender is more than willing to yield to add one more customer onboard.

Valuation

Most lenders would want to revalue your property while considering refinancing your mortgage loan. If the property value is headed south, it can impact the Loan-to-Value ratio and also impact the interest rate offered. For example, if you have 5 years equity on your home, you may still have 80% of the loan outstanding. When a new lender deputes a valuer, it is likely that he will value your home for less than your original purchase price. This will potentially bring down the percentage of equity you hold on your home triggering higher cost on insurance apart from a higher interest rate lower loan amount. If the LVR pegs too high, a new lender may even reject your application for refinancing.

Take stock of your financial position

Has your financial position altered significantly after purchasing your home? Factors that can contribute to a changed financial position include:

• A new job that can impact the borrowing power
• New loans or debts attracting additional financial commitments can impact your ability to make repayments and
• Having a child can seriously alter your lifestyle and enhance your everyday expenses.
• You should also know that most lenders have ramped up the scrutiny of serviceability consequent to the ongoing pandemic and therefore you may want to speak to your financial advisor or a professional mortgage broker before agreeing to a mortgage refinancing proposal.