As a home owner with a mortgage, chances are you've heard of the term 'refinancing'. Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances.
Refinancing can allow you to consolidate your debts or access the equity in the property without having to sell it, for example, to make home renovations or to buy an investment property.
However, refinancing is not the best solution for everyone. There are many different factors that need to be considered when thinking about refinancing a loan. Your mortgage broker will assess your needs and objectives as well as your current financial situation.
Some people are savvy researchers and will want to take advantage of a lower interest rate from another lender should that be available to reduce repayments. If you aim for a lower interest rate, this could potentially save you a lot of money in the long term.
While saving money is often one of the biggest benefits of refinancing, it may not be as straightforward as that and careful consideration is required.
At this point, the broker will need to find out about your existing loan, repayments and current loan structure as well as your current financial situation, including your income, any other current debts and about any assets you own.
The current value of the property is also taken into consideration, so your broker will have access to current data that will indicate what your property is likely to be worth.
The broker will then review the various loan options and figure out whether it's worth it for you to refinance.
In some cases, the mortgage broker can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.
One of the risks of refinancing your home loan is that you may need to pay Lender's Mortgage Insurance (LMI) to your new lender. This is determined by the equity in your home and protects the lender not the borrower against potential loss. If switching your loan means you will need to pay LMI again, it may not be worth refinancing.
If you do decide to go down the refinancing path, working with a broker rather than going straight to a lender has advantages. Broker's generally have access to loan options from a range of different lenders (on average 34 lenders), and if there's a better opportunity for you, they're usually able to access it.
If you had a recent major life change such as a loss of income or a change in marital status, you might be looking to refinance.
If you want to refinance to lower lending costs to help you manage your monthly repayments, a mortgage broker can negotiate with your current lender for a rate suitable to your current situation.
A mortgage broker can also help you look at alternate options to consolidate your personal loans and credit cards into the one loan. This could help you in lowering your monthly repayments, or help you keep your repayments on time and even save you interest in the long-term. The key is to speak to a broker you are comfortable with who has access to many lenders and their products and has the expertise to help you through the refinance application process.
Olympia Andronicos is a credit representative (507463) of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237). Choice Finance Specialists 0418 690 628.