TODAY’S MORTGAGE MARKET IS VERY COMPETITIVE, SO IF YOU’VE PUT YOUR MORTGAGE ON ‘AUTO-PILOT’ YOU COULD BE PAYING MORE INTEREST THAN YOU SHOULD BE.
If you’re looking to save money and pay off your home loan sooner then it makes good financial sense to review your home loan to see whether refinancing could be right for you.
Here are his five key steps to refinancing:
1. Advertised interest rate vs comparison rate
When it comes to refinancing it’s important to weigh up your potential savings you could make by switching loans, against the costs. So when you’re considering a new loan make sure you look at the comparison rate – rather than the variable rate.
If you compare loans based on the variable interest rate, you’re not taking into account the fees and charges the loan may carry. Instead, look at the comparison rate as a tool to help you identify the true cost of the loan.
For example, A client showed us a competitor’s offer which seemed like a great deal. However, after carefully reviewing, there were a lot of additional ongoing fees and was going to cost the client a lot more in the long run. Compared to our offer which although had a slightly higher interest rate there were no ongoing costs at all.
2. Find a suitable loan
Interest rates are not the only consideration when you are looking at refinancing. Each loan offers a combination of different features, so you need to make sure the one you choose has the features that are important to you. Some questions to ask when evaluating a loan include:
- Can you make extra repayments?
- Does the loan offer an offset facility?
- Are you allowed to make unlimited redraws – and will you be charged for them?
- What are the ongoing fees or break fees?
It is an Australian Government requirement for financial institutions to have a Home Loan Key Fact Sheet available for every mortgage product; this is available on the lender’s website.
This is a true ‘non-bias’ look at the facts of the loan product and can make comparing products easier.
3. Assessing your refinancing and costs
While refinancing is a straightforward process, there are some costs you’ll need to consider:
- Break fees: Consider these fees and weigh them against the savings of refinancing.
- Valuation fees: In Australia valuation fees can cost $300-$500 depending on where you live.
- Establishment & ongoing fees: Confirm any establishment and ongoing fees to your loan.
Generally, the interest rate savings will outweigh the costs of refinancing the loan.
Meet Fiona, she was looking to refinance her two loans, totalling $494,000 from a major bank. Unsatisfied with the service, she was seeking better treatment and to pay off her loans quicker and consolidate other small loans. After finding her a suitable loan to achieve her goals, her mortgage broker worked out the savings.
Over the life of the loan, Tom saved a total of $128,690 or $216.50 per fortnight, giving Fiona the ability to pay off his loan 6 years and 3 months earlier!
4. The application process
Applying to refinance your home loan can be a daunting process, but a good broker will be able to guide you through the process as painlessly as possible.
One of the ways you can help the application process run smoothly is to have all your supporting documentation ready when you apply. Documents you may need to supply include:
- Identification
- Proof of income such as tax returns, pay slips and dividend statements
- Documentation on your existing credit facilities and expenses
- Rates notice
Depending on the complexity of your application, more documents may be required.
5. Settling your new mortgage
Once approved for finance, you will need to signed and return loan documents for which the current lender will organise the refinance.
When your current lender has received the payment on their loan, your broker will take possession of your Certificate of Title and the refinancing process is complete.
Whether you’re looking for flexibility, a lower interest rate or to consolidate your debts, refinancing could help you achieve your goal. As everyone has different needs and objectives, be sure to consult with a financial advisor who can give you advice on your particular situation.
Ready to Refinance?