WHAT TO BE AWARE OF WHEN REVIEWING YOUR LOAN

You may be wondering whether you should refinance your existing mortgage.   There may be very good advantages for you in refinancing a loan – but you also need to be aware of possible negative consequences.

WHY YOU MIGHT BENEFIT FROM REFINANCING YOUR EXISTING HOME OR INVESTMENT LOAN:

1. Lower Your Interest Rate:  Chances are you have had your loan for a while.  People often look at refinancing three to four years into their loan.  While you may have got a great interest rate at the time, Lenders are always trying to grow their market share which results in a high competition for your loan. There’s great opportunity to save big dollars simply by looking around.  A 0.25% reduction on a $300,000 loan is $750 saved a year.  Now calculate that over 30 years!  Finance brokers have specialist software that makes the arduous task of searching for the best loans very simple.
2. Access Your Equity:  Because property prices often go up over time, you may have equity available in your property that could be used to renovate your home.  You may also be able to buy an investment property without having to save for the deposit, and further build your wealth.  Some Mortgage Brokers are able to give you an estimated value of your property, and discuss how to transform your plans into reality.
3. Restructure for Your Current Situation:  As time passes, your situation changes. What worked great previously may not be right for you now. Maybe you would like more certainty of payments so a fixed rate loan could be worthwhile? Or maybe you would like to be able to access additional features not currently offered on your current loan such as offset, package benefits, redraw, portability and more?
4. Debt Consolidation:  You may not realize how much of your hard earned money is going towards you car loan, credit cards, and personal loans.  You could be much better off rolling all of your smaller loans into your home loan, which generally has a much lower rate, and focusing those extra payments on your home loan to pay them off sooner. This could potentially putting you years ahead of your payments.
5. Lower Your Repayments:  If your income has dropped, you may be able to reduce the minimum monthly repayments you must make by extending the term of your home loan.  This would leave you with more cash at the end of the month when you don’t have as much cash available to service the loan.
6. Asset Protection:  Lastly, but perhaps more important than all of the above, is protecting your assets.  Some people own more than one property, but have one loan agreement with the same Lender who holds mortgages over all the properties.  This is a very bad idea for the property owner.

WHAT TO BE AWARE OF

While there are the benefits mentioned above, you should consider if they are the best for your situation.

• Refinancing may have hidden costs you didn’t expect. If you are refinancing a loan that’s fixed, you may incur break costs which can be in the thousands. Be sure to confirm the exact break cost with your current lender before signing on the dotted line. Outgoing lenders will generally always charge discharge fees which can be up to $500.
• Is the interest rate reduction worth it? Refinancing for the sake of a small fraction of a percent may not justify the costs of even doing so. Be sure to look at the savings in dollar figures on an annual basis to get a good idea as well as any other benefits you are gaining.
• Make sure you are not worse off. The interest rate is just one part of your loan. Not all loans have the same features and benefits. If you are using facilities such as offset accounts, package savings including credit cards, make sure that by refinancing you are not forfeiting such benefits that leave you worse off.
• Lower repayments are not always the best. Yes, by extending your loan you can lower your monthly repayments now, but you will also be paying your loan for a longer period in future?

WHAT NOT TO DO !

Don’t notify your current Lender of your intentions to refinance until you have secured an ideal loan approval from a different Lender.  You do not want to attract attention to yourself and have your current Lender scrutinize you & your loan arrangements.

The moral of the story is to consider your personal situation, and make sure you understand what you are getting.  Once you have obtained legal advice, an experienced mortgage broker can be of great assistance if you are considering refinancing as part of your asset management and financial management strategies.

Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.