Quick Guide to Refinancing your Home and Investment Loan
With competitive deals on offer, low interest rates, and a fresh official cash rate cut, refinancing your home and investment is easier now more than ever. If home loan refinance is on your “to do” list this year, it’s imperative that you become conversant with the entire process. Our brief guide contains some helpful information that’ll help you familiarize yourself with some important aspects about refinancing a home and investment loan.
5 Steps to Take when Refinancing your Home
When considering refinance as an option, there are certain steps that you need to take. They include:
- Determine the features you want
You have to think of the reasons as to why you want to refinance. The main reasons for refinance include:
- To access equity
- To get a lower interest rate
- To switch to a different product presently not provided by your current lender
- To consolidate a number of loans to one lender
Depending on your reason for refinancing, you have to think of the features that you want with your new loan. Determine whether you want to offset, split, redraws, etc in order to make more value out of your mortgage. Do you want a variable rate instead of a fixed one? Do you want to lengthen or shorten the loan term? All of these are the things to consider beforehand.
- Choose an ideal type of refinance option
There are basically two types of loan refinance options to choose from. The first one is the internal finance option, which basically involves switching your loan with a new one while still staying with the same lender. The second one is an external refinance option, which involves switching your loan from an existing lender to another lender.
If your current lender is capable of offering the features that you’re looking for, then internal refinancing might be an ideal option. If your current lender doesn’t offer the product you’re interest in, or can’t allow consolidation of all the loans you have, then seeking external refinancing may be in order.
- Find the best deal
The whole point of refinancing is to find a better deal than you’re already having. So, you’ve to compare the current home loan with other home loans. Once you find a home loan that seems like a good deal, proceed with the following important step.
- Do the math
One important aspect for comparison between the old and the new loan is the interest rate. You are probably opting to refinance so that you can get to pay a lower interest rate. In this regard, there’s one piece of the puzzle that you must solve. You have to determine the effect the lower interest rate (promised by the new lender) has on the total cost of your new home loan.
You have to note that a lower interest rate may translate to lower monthly payments, but it doesn’t necessarily mean that the new loan is cheaper. Therefore, it’s important to check whether the lower interest rate comes with a longer loan term. This will prevent you from choosing a new loan that increases the total cost of your home loan.
If the total cost of your new home loan is lower than that of the current loan, then you can consider yourself to have found a better deal. You can also go ahead and compare your new found deal with other deals to ensure that it’s indeed the best on the market.
- Explore the costs involved
Following the 2011 eradication of mortgage exit fees, borrowers are no longer burdened by the obligation to pay penalties such as the deferred establishment fees when refinancing. Nevertheless, there are other costs that you must explore beforehand. Depending on the new lender’s policy, certain fees may be applicable. Therefore, you have to determine what upfront costs you have to pay in order to establish the new home loan
The decision to refinance your home and investment loan should come after establishing that the benefits of the new loan by far outweigh both the benefits of the existing loan and the costs of the new loan. Hiring a mortgage broker can be a smart move to ensure that you choose the most ideal refinancing option.