Refinancing is not quite as simple as changing loans or lenders. It’s a complex process so it’s extremely important to carefully consider what’s important to you and thoroughly evaluate your current financial situation as well as your medium- to long-term goals. Having an experienced mortgage broker will go a long way to making you feel sure that you’re making sound financial decisions.
Refinancing can be beneficial as it can reduce your repayments by getting a lower rate in the short-term, and by ensuring that an ongoing fixed-rate will remain competitive for the term you’ve selected. As we have discussed, borrowers often seek to refinance when dissatisfied with a particular lender, when they need to consolidate other debts into a single repayment structure, or to access flexible loan options.
Consider these key variables when assessing a refinance deal:
- Is the interest rate competitive?
- Is the fee structure acceptable?
- Does the loan have flexibility?
- What backend support and services will you receive?
- When/how much will the rate rise in the future?
It’s wise to note that the benefits of refinancing will not be maximised if you make only minimum repayments and spend any excess funds. By plugging extra cash into your new loan, you’ll be able to reduce the overall outstanding balance and pay off your home loan sooner.
Outline your needs
Choosing a refinancing package comes down to matching your particular situation with the right loan that will address your current and future needs. There will be numerous features, rates and options to consider. As an example, if you are planning to have children in the near future you could opt for a lower home loan rate to allow for lower repayments, which would mean more disposable income for your family. However, you may have to sacrifice some other features to secure a low rate so be sure that you’re clear in your priorities.
What features are important to you? Consider what features will best support your financial future. Some loans allow you to pause repayments if you need to take time off work; other loans allow cash withdrawals from the loan amount. You can generally pick and choose what features suit you so it pays to understand what’s on offer.
What lender is going to suit you? There are a wide variety of lenders to choose from with each offering multiple loan packages and features. To find the right lender for your refinancing deal – start by evaluating what you are missing out on with your current lender and what services you would prefer. The more traditional banks (Westpac, ANZ, Commonwealth Bank and NAB) will offer loans at slightly higher rates and with stricter borrowing criteria; however, they often have greater reliability and more comprehensive in-store and online services. By comparison, smaller banks and online lenders usually have discounted rates and less stringent criteria for approval, with the trade-off being little to no in-store service.
Are you planning to sell in the future? If selling is on the cards for you, refinancing can still be viable although you should primarily consider a variable rate loan. Fixed rate loans will often charge higher fees when switching from one lender to another, whereas variable rates will provide more flexibility if changing lenders part-way through your loan contract.
Have you weighed up the fees? Too many people will select a home loan having only compared deals by the rates. It’s then often the case that service fees escalate quickly and may become an unwelcome surprise. Before choosing a lender, check the details of all fees attached to your preferred loan to understand if additional costs will be involved and whether they are worth paying. Lenders usually offer a lower rate with higher fees and vice versa, so look for a comfortable mid-point.
Now more than ever it is important to work with a broker who understands your needs and helps structure you the right way today, and into the future. Red & Co’s Award Winning mortgage brokers take time to understand your needs and structure loans that work for you – and not those that fit for the banks.
Get in touch with one of our expert mortgage brokers today and get the right advice, speak with Jayden Vecchio on 0421 874 357 or Shoheel Khan on 0418 110 870.