Is now a good time to refinance your mortgage?
Higher than average interest rates have led to mortgage pressure for most home owning Australians, either because they are on a variable rate that keeps increasing or because a previously low fixed rate has expired.
If you’re in either boat, you may have resigned yourself to the higher home loan costs but there could be options to pay less.
Keeping in mind that this isn’t personal financial advice, here’s some information about how you can potentially reduce your home loan costs by refinancing.
What is refinancing?
Whether you only own your own home in Neutral Bay or you have a portfolio of investment properties, it is likely that your mortgage bill will be amongst your biggest monthly expenses. Despite this, many people see their mortgage as ‘set and forget’.
If you haven’t reviewed your mortgage recently, it’s probably worth a call to your broker. They can talk to you about the possibility of restructuring your loans or switching to another lender so you pay less each month (or better yet, you pay the same but reduce the life of your loan).
Refinancing basically means closing your existing loan and switching it to a different loan product or lender.
Why refinance?
There are a few different reasons that generally drive people to refinance:
– Getting a lower rate
– Shortening the term of your loan
– Getting cash out
– Consolidating debt
Before you reach out to a broker, think about what your main goals and current financial circumstances are and factor them in. For example, if you’re finding your regular bills have become unmanageable, switching to a loan with a lower rate will give you some financial breathing room.
Your home loan may have switched from a fixed low rate to a new variable rate automatically, but going through the steps to refinance could uncover a better option with a lower rate. You won’t know unless you ask, so don’t be afraid to reach out to an expert.
The refinancing process
As mentioned, it never hurts to have a conversation. If your previous broker hasn’t been in touch, we are happy to connect you with a recommended operator.
When you refinance your home or investment portfolio, you’ll sit down and go through your existing arrangement as well as your current finances and future goals. Your broker will let you know whether or not the loan you have can be updated or closed without exit fees; sometimes this is the case and you may need to postpone a switch until it expires.
From there, your broker will review all your borrowing options and let you know if there is a different lender or loan which better suits your circumstances. Even saving a couple of percentage points can make a difference to the amount you pay overall, meaning more money in the bank in the future.
The next step will be to share the information your existing or new lender requires to establish a new loan. There will be some time gathering documents and signing papers involved but this is always worth it. You can expect the process to take a few weeks while the lender goes through the steps to approve and establish your new arrangement.
One thing to be aware of at the moment is what’s referred to as ‘mortgage prison’. This is a situation where your mortgage repayments could potentially be lower with another lender but if you attempt to refinance you won’t get loan approval because the change in interest rates has impacted the amount you can be approved for (even though you were probably approved for more than this amount in the past). This is not ideal but a good broker will work with you on a longer term plan to ‘break you out’ of this situation. Not being able to refinance today doesn’t mean you won’t be able to do so tomorrow.
The final benefit of refinancing is that it may give you the financial flexibility to add to your property portfolio sooner.
Are you interested in investing?
We handle many large property portfolios as well as individual investment properties. If you are looking for an investment property, or an experienced management team, give us a call today.
