Observant homeowners in Brisbane and around Australia will be well aware that the RBA has kept the cash rate at 4.1% for the second month in a row. This is a relief for homeowners who have been paying out more than they anticipated towards their mortgages.
The rapid increase in interest rates has gotten many homeowners thinking about refinancing their mortgage. Refinancing is actually at its highest point in the last six years, according to the Australian Finance Group.
In these turbulent financial times, we’re hearing a lot of questions from property owners about refinancing their homes. Is this the right time to consider refinancing your home? Where does one even start with that process?
At The Henry Wong Team® we’re not financial advisors, so when it comes to your personal financial situation and decisions we’d recommend speaking to a finance professional. However, if you’re considering refinancing, there are some questions you should definitely be asking yourself. Today we want to go over a few of them for you.
1. Why are you refinancing?
The ‘why’ to your refinancing considerations needs to make a lot of sense. It needs to justify the efforts and the process of refinancing. In today’s climate, most homeowners are seeking a cheaper interest rate. But you could also be seeking more flexibility, or maybe you need to access some of your home equity for a separate life matter.
If you have a good understanding of why you’re going down the refinancing path, you’ll be able to develop a well-thought out strategy to help achieve your goals.
2. Are you eligible for refinancing?
There are many different lenders out there, and all of them vary in their criteria you need to meet to refinance with them. These include things like your credit score, your income stability, your work from home status and how much of your loan is still outstanding. We’d suggest ensuring you stand in good stead when it comes to these factors before you begin your refinancing journey.
3. What are the costs of refinancing your home?
You need to understand the costs involved with refinancing, as they could be a lot higher than you thought. We don’t want you scratching your head and wondering if it was worth all the effort! Are there discharge fees or valuation fees? What about any hidden costs with the new lender? Is this lenders mortgage insurance, or any annual or processing fees?
Work out how much you’ll be saving annually with your new lower interest rate, and then decide if it’s worth it when you take other costs into account.
4. Should you fix your interest rate or keep it variable?
To fix or not? Fixed interest rates give you stability over time, allowing you to plan your future finances better. A variable interest rate provides less certainty, but if rates go down so will your mortgage, and you could end up paying off your home faster. You need to make a choice that suits your financial situation, aligning with your goals and risk tolerance. Your long term financial goals need to be a central part of this particular decision.
5. How much equity do you have in your home?
The value of your home and how much equity you have in it is vital when it comes to determining how much funding you have access to. Your loan-to-value ratio (LVR) reflects this, showing your home loan size in relation to the property value, as a percentage. The lower the percentage, the more equity you have and the higher your borrowing power.
Understanding how much equity you have will give you a better understanding of the options available to you.
6. What is your credit rating?
Your credit rating can really impact your ability to secure refinancing terms. If it’s not looking great, you could have a difficult time trying to find a lender to refinance with. They will use your credit score to assess the interest rates and loan options they can offer you, so having a higher score will work out better for you. Bear in mind that refinancing also appears on your credit report, and lenders may be wary of you if you have refinanced often in the past.
7. What is the turnaround time on getting your new home loan in place?
That nice low interest rate on your new home loan looks appealing, but it could be months before you get to enjoy it. Different lenders simply process things at a different pace, so you want to be in the clear about how long your potential new lender will take to finalise your deal. This can then play a part in your decision making.
8. Is the new home loan still appealing after the introductory rates expire?
There’s often a honeymoon period of introductory rates when you switch to a new mortgage. Designed to attract borrowers, you need to consider what happens when these rates expire, typically between one and three years after commencement. Can you handle any increases in monthly payments? Will you really be better off than you are in your current situation?
9. Are you able to consolidate other debts into your home loan?
Many people have high interest debt not linked to their mortgage accounts, such as personal or car loans. If this is you, consider consolidating these loans into your home loan. Overall interest costs could turn out to be lower, and you’ll only have to worry about a single payment every month. Definitely speak to a finance pro about this one, as there are a number of pros and cons to weigh up that are beyond the scope of this article.
10. Have you spoken to your current lender to negotiate your current loan?
It’s easier for your current lender to keep a client than it is for them to find a new client. BEfore you begin looking for someone to refinance your home with, consider talking to your current lender. There’s a high chance they’ll offer you a better deal if they hear you’re dissatisfied with the current situation.
Brisbane Real Estate Experts Here to Help
Refinancing is definitely a hot topic at the moment, and it could be a worthwhile and strategic financial move for you and your family. There is a lot to consider though, and we hope the above points have helped you as you ponder what to do. Remember, speaking to a finance or mortgage pro is always a great idea! Everybody’s personal finances are unique, and they’ll be able to guide you to a good decision after taking yours into account.
If you have any questions about real estate in Brisbane or around Queensland, please get in touch with The Henry Wong Team®. We’re always here to help!
