Refinance

When Would I Refinance My Mortgage?

Whenever it makes financial sense to do so.

Heard about mortgage refinancing? In the past, most people who took out a mortgage doggedly continued with it until they had paid it off. These days, people refinance their mortgage much more frequently. The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their home loan.

Mortgage refinancing reasons: lower rate

The most common reason for people to refinance their mortgage is to get a better deal. But be careful you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.

Mortgage refinancing reasons: more flexibility

Many people only discover the full details about their mortgage when it’s too late. They try to do something and get told by their lender that either they can’t do it, or they will incur a hefty charge if they do. An example is a redraw facility – the ability to pay extra money into a mortgage and then redraw it later. This feature is not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.

Mortgage refinancing reasons: renovation

If you carry out renovations, it often makes sense to refinance your mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your home loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity.

Mortgage refinancing reasons: home equity

Over recent years in the property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $200,000 equity.

Mortgage refinancing reasons: defaulting

Some people find they have borrowed more than they can comfortably repay, and they’re in danger of defaulting. There’s no shame in that. But don’t suffer in silence. If you’re having trouble making your mortgage repayments, talk to us about refinancing your home loan to make it more manageable.

Things to consider before I refinance?

So the home loan you agreed to a few years back no longer caters to your current financial situation and you now need to make a decision on whether or not refinance. Here’s a list of everything you need to consider before making the big switch.

Set your goal

Whether it’s to gain lower monthly repayments or to access the equity of your property for a home renovation, there are various reasons why consumers choose to refinance. It can offer great savings with more competitive interest rates, loan features and reduced fees.

Start by analysing your current situation and do a bit of online research to see whether a refinance would be beneficial for you.

Professional advice

Once you’ve done a bit of online scouring, the next step is to seek professional advice. Enlisting the services of a broker can assist you in finding the best loan to suit your situation, as they can negotiate on your behalf and walk you through the whole process.

Brokers stay up-to-date with current market interest rates and most have access to over 30 different banks and lending institutions. They’ll assess your current loan to make sure a refinance is suitable. They are unlike to advise on one if all you’re saving is $400 a year.

Compare all your options

The competitiveness of the current market means that good deals are aplenty, so it’s always a good idea to take the time to consider your options and find the deal that is best suited to your situation. Write down a list of features imperative to your new agreement and always refer back to it while browsing.

There is always the option of refinancing internally or externally. Before switching lenders, speak to your current lender to see if they can provide a better deal, as the threat of leaving could usually prompt them into a making a better offer.

Paperwork

The documentation required varies from lender to lender and the kind of loan you are switching to. However, in most cases, the paperwork required to support your application are details of your income, employment, assets and other loan commitments.

Take your time

Just like applying for your first loan, refinancing is a serious financial step and the more time you spend on the decision, the less likely you are to leave yourself open to risks. Weigh up all the applicable fees against the potential savings. The timeframe for a refinance can be anywhere from a week to a few months depending on the bank you are moving to and from, but the end result is worth it. It’s always a competitive market so it’s good to be sure.

What Do I Need To Know About Debt Consolidation?

Not to confuse it with debt elimination.

If you’re swamped with credit card debt and personal loans, it can sometimes help to talk to a professional about debt consolidation. However, you need to be wary. You might end up paying more in the long term and/or reduce the equity in your home.

What is debt consolidation?

Debt consolidation is where you transfer your credit card debt and any personal loans to your mortgage. The advantage of doing this is that the interest rate on your home loan is likely to be lower than you’re paying on your smaller debts. You might also benefit from a regular manageable repayment. However, there are some things you need to be aware of.

Debt consolidation is not debt elimination

Since debt consolidation clears the debt from your credit cards, the temptation is to think that you’ve paid off the debt. But you haven’t. You’ve merely transferred the debt to your mortgage. So, once you’ve consolidated your debts, consider snipping your credit cards in two. Otherwise, you could get trapped in a debt spiral.

Remember the 80% LVR threshold

When you took out your mortgage, you might have been under the 80% loan to value ratio, which meant that you didn’t have to pay lenders mortgage insurance. Be careful when you consolidate your debts that you don’t reduce the equity in your home and have to pay lenders mortgage insurance.

Personal loans aren’t tax deductible

Interest charges on an investment loan are tax-deductible but interest on a home loan isn’t. When you consolidate your debts, you need to be mindful of how much interest you can claim as a tax deduction. Seek advice from a tax agent before making a decision in this area. To learn more about debt consolidation, contact us today.

What Is A Home Equity Loan?

A way to utilise the equity in your home.

Many Australians own homes that are now worth far more than they still owe on their mortgages. With a home equity loan, you can unlock that “equity”.

What is home equity?

You’ll hear a lot about equity in relation to home loans. Equity is the difference between what your home is worth today and what you still owe on your mortgage.

Utilising your home equity

If your home is worth $400,000 and you only owe $100,000 on your mortgage, you have $300,000 in home equity. Previously, the only way you could utilise that equity was by selling your house. Now there is another way.

Home equity loan – unlocking home equity

With a home equity loan, the lender lets you borrow against the equity you have built up in your loan. Let’s say you need money for your daughter’s wedding. You don’t have any ready cash but you do have equity in your home. A home equity loan is one of a range of possible solutions.

Home equity loan – a better interest rate

If you need money, you could use a credit card or take out a personal loan. But you’ll probably get a better interest rate with a home equity loan because the loan security – your house – is so good.

Monthly repayments

One thing you need to remember with a home equity loan is that you still need to make monthly repayments. To learn more about home equity loans, contact us today.

What Is A Reverse Mortgage?

A way for retirees to unlock the equity in their homes.

The reverse mortgage or equity release loan is a relatively new mortgage product that has been created for retirees who are asset-rich but cash-poor.

Reverse mortgage or equity release loan – what is it?

If you’re a retiree, a reverse mortgage or equity release loan lets you unlock the equity in your home. It is effectively a loan against the value of your home that gives you either a lump sum, line-of-credit or in regular installments.

No monthly repayments with a reverse mortgage

Unlike traditional mortgages, with a reverse mortgage you don’t make regular loan repayments. This suits many retirees because they have a reduced income.

No need to sell up with a reverse mortgage

Another advantage of reverse mortgages or equity release loans is that you can access the equity in your home without having to sell up and downsize. You can turn the equity into cash and continue to live in your home and neighbourhood.

Reverse mortgages: When do repayments start?

The lender will only seek repayment on a reverse mortgage when you permanently vacate the property. Then the borrower or the estate will repay the lender in a lump sump or from the proceeds of the property’s sale.

No negative equity guarantee

In seeking a reverse mortgage or equity release loan, look for a lender which has a no negative equity guarantee. This ensures the full repayment won’t exceed the value of the home. It also means you’ll be able to live in the property for as long as you choose.

Seek specialist advice

Equity release loans or reverse mortgages are specialist products and should be carefully considered.