Few Tips On Refinancing Home Mortgages

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If you are thinking about refinancing your mortgage, you should properly consider all the options that are available to you. This opportunity will enable you to get better interest rates and more comfortable terms and conditions. It will also enable you to save a lot of money per month and prevent your home from being lost.

Refinancing your mortgage can lower your monthly payments, reduce your total interest, or tap into home equity. To secure the best deal, compare multiple lenders, factor in closing costs to calculate your true break-even point, and ensure you have a credit score above 620 and at least 20% equity.

This article contains a few tips on refinancing home mortgages.

Lower Your Monthly Payments

Refinancing can help you to lower your monthly home loan payments in a number of ways. Most homeowners can easily get lower payments by shopping for better interest rates. A little reduction in interest rates can make a lot of difference over a number of years. You can save a lot of money over the years if you get interest rates that are 1% to 2% lower than your current interest rate. Another way to lower your monthly payments with refinancing is to extend the repayment period. You will pay more money in the long run but you will have reduced financial pressure because of the lower monthly payments.

Consider Switching To A Fixed Rate Mortgage

If you are struggling with your monthly payments or just want to save more money, you should consider changing from an ARM loan to a fixed-rate mortgage. Adjusted-rate mortgages were the popular choice when there was a boom in the housing market and consumers could easily get large home loans. There has been a change in the market over the past few years, and many people will get more benefits from a home loan payment that doesn’t change from one month to the next. ARM loans are good in the short term but if you plan to live in your home for several years, you should consider changing to a fixed-rate mortgage.

Eliminate Private Mortgage Insurance

Private mortgage insurance is usually required when you don’t have the typical 20% down payment or if you apply for home loans with poor credit. A lot of people continue to pay a monthly fee for PMI from year to year because they got their homes without the usual down payment. You can easily eliminate private mortgage insurance by refinancing and save yourself from paying the monthly fee.

Cash Back Mortgage Refinancing

The value that you have built up in your home through regular mortgage payments over the years can be used as a source of cash. This is done by applying for a cash-back mortgage refinancing. This facility is offered by most banks and lenders in one form or another. It is simply a loan that is taken against the equity that you have built in your home and it has better interest rates than conventional personal loans.

The Dos and Don’ts of Refinancing a Home Loan

With so many different sources of information out there, it can feel overwhelming knowing what to do (and not to do!) when refinancing.

That’s why we’re here to help you on your refinancing journey, whether you’ve made the decision to switch loans or you’re considering your options. Read on to learn what you should do and the things you can avoid doing to refinance your home loan with confidence.

Don’t – refinance for the wrong reasons

It can be really tempting to accept a loan deal that seems too good to be true, especially if it’s the first deal you find. Unfortunately, some lenders’ deals aren’t as competitive as they might first appear.

Honeymoon rates are some of the lowest rates you’ll come across during your refinancing research. But there’s a catch. This low rate only applies for a limited time, meaning you might be paying a similar (or higher) rate than the one on your current loan once that period is over. It’s a smart idea to learn how much you’ll actually be paying when the honeymoon period ends.

The competing lender might also give you an exclusive offer to hook you in. For example, they might offer a cashback up to a certain amount if you refinance with them. But you might end up with a higher rate than your previous lender.

Do – understand your goals and current financial situation

Take a moment to look at your current home loan and interest rate. For instance, is the interest you’re paying negatively affecting your financial goals? By understanding your current loan, you can decide if it’s actually working for you.

If you think your loan isn’t helping you achieve your goals, it might be time to refinance. Knowing your ‘why’ can help you find the ideal new loan and lender that will support your specific needs.

And if you’re still unsure if refinancing is for you, here’s a list of common reasons why people refinance a home loan:

To get a better interest rate that helps you save money.
To access new features on your loan, such as flexible payments and free redraw.
To access the equity in your home to renovate, travel or invest.
To consolidate your debts into one monthly repayment rather than multiple ones to manage your money better.

Don’t – submit loan applications to lots of lenders

Submitting multiple loan applications to different lenders might seem like a good idea to cover all your bases. You might think it can boost your chances at securing a better deal. But applying to refinance multiple times can have a negative effect on your credit score.

Why? Well, each time you apply, your lender will conduct an enquiry on your credit report. Having too many enquiries in a short period can be a red flag to lenders, so it’s important that you do your lender research first before refinancing.

Do – research your refinance options

Like with a lot of things in life, each type of home loan has its pros and cons. Whether it’s the loan features, interest rate or repayment options, researching the different loan types can help you understand what’s available. You can do your research on your own. Alternatively, you can talk to your lender or broker about your refinancing options to help you save time and money down the track.

Here are three things that you can investigate during your refinancing research:

Interest rates – How will your new rate compare to your current one?
Features – What features does your new loan have that your current one doesn’t?
Costs – What are the costs to refinance and are there any ongoing fees? Do these outweigh the benefits of refinancing?

With so many home loan comparison websites out there, it’s easier than ever to research and compare. And if you want to see how much you can change by switching loans, you can use this home loan refinance calculator.

Don’t – forget about the costs involved

There are some costs involved with refinancing that can put a lot of homeowners off from switching loans. Take the time to work out what you might have to pay as part of this process. You can chat to your lender or broker about the specific costs that are involved so you feel fully prepared.

As a starting point, some of the costs you might encounter include:

Discharge costs
Break fees
Loan application fee
Title search fee
Property valuation

You’ll also need to work out if you have enough equity to refinance so you can avoid Lenders Mortgage Insurance (LMI), as changing lenders without enough equity can become costly.

Do – consider the features of your new home loan

Every lender is different – and so are the features they offer on their home loans. Compare the different loan options that are available and see which features can benefit you the most.

Great Southern Bank has many clever home loan features that our customers find useful, which include:

Unlimited extra repayments on our variable home loans, free of charge, and up to $30,000 on fixed loans
Free redraw on all our loans
Flexible repayment options, such as paying every week, fortnight or month
No annual or monthly fees
The ability to switch loan and repayment types
The Boost, which allows you to pay off your loan every time you spend

Don’t – go for the longest loan term

When you refinance, you might be able to change your loan term. If that’s the case, then you can carry over the remaining term on your current loan to the new one. You might also avoid paying any additional interest too, which can be a help you pay less over the life of your new loan.

Conclusion

Although mortgage refinancing is not for everybody, take some time to consider the tips on refinancing home mortgages provided in this article. Things will not change on their own if you do not take action. A mortgage refinance can have a great impact on your financial situation.