Mortgage, the word seems so resolute, so final. Mortgage conjures up images of a life long contract that will remain until its paid off, but did you know that it’s possible to renegotiate the terms of your mortgage? You can even swap lenders if all the paperwork goes your way. But why would you want to? Surely altering your home loan would attract fees and fines? Is refinancing your home loan a good idea?
Well, it depends on your circumstances, but in some cases, yes! Refinancing your home loan could save you thousands, if not tens of thousands of dollars. Before you rush out and make a mortgage comparison and refinance your home loan, let’s take a look at what’s involved and whether it’s the right move for you.
What is refinancing?
Simply put, a lender agrees to pay off your existing loan, and then you pay back that lender with new terms and conditions.
The home loan market is incredibly competitive, with lenders constantly offering better deals, features, etc to entice people into taking out a mortgage with them. Every five years, you should asses the health of your mortgage and compare it to deals currently being offered.
Refinancing your home loan allows you to take advantage of newer, better featured home loans. By refinancing, you may be able to add features like a withdrawal facility or an offset account.
By renegotiating your loan, you could get better interest rates and a shorter term of loan. Repaying your home loan off quicker and cheaper, sounds pretty good right? So why doesn’t everyone refinance their home loan?
If you are on a fixed term mortgage, you will have no room to refinance; you will have to wait until your fixed term has expired. Refinancing a home loan can incur a plethora of fees, so in some cases it ends up costing more to refinance than you are saving.
Settlement fees, establishment fees, LMI and more. The cost of refinancing your home loan should be considered before you start thinking about potential savings.
The steps involved.
- There is no harm in inquiring about refinancing, and its quite easy to open up a dialogue with your lender. First you will want to have a close look at your current home loan. What rates are you paying? What fees? Have a look at the true cost of your current loan and ask your self if there are any features or benefits that you are missing.
- Now, talk to your lender and ask for a better deal. Many people run out and try to find a different lender, but your current lender should be your first port of call. It is in their best interests to keep you as a customer and they may offer you a deal without the need to change lenders.
- Compare home loans, look not only at interest rates but features and benefits. Does your old home loan feature an offset account? What about the ability to make extra repayments? These are features that can save you big money and pay your loan off faster.
- Determine the costs of refinancing. All lenders will have a discharge fee, and an establishment fee, so keep this in mind. Depending on the amount borrowed, you may have to pay lenders mortgage insurance again, so be wary.
- Consider a new lender. Sure, your current lender may have gotten spooked with all this talk of refinancing and offered you a stellar deal. If your current lender is motivated to keep you, imagine how motivated a new lender is to gain your business. Some lenders will run special deals and waive fees and expenses for those refinancing from another lender.
- Ok, you’ve found the best deal, apply for a new home loan and exit your old one. You know the deal, have all relevant information ready, and apply. Exiting your old loan is the easiest part, with your new lender communicating with your old lender. All things going well, you should be able to go from application to settlement in a few weeks,
That’s it, congratulate yourself on being a finance savvy, money-saving machine. If done right, refinancing your mortgage could save you huge amounts of money. Refinancing can be a lengthy process but can be done multiple times throughout the life of your loan.
Finding a better rate and better features can seem like a chore. To save half a percent on your repayment rate may seem trivial, but when applied to large sums of money such as a mortgage, the savings over the long term could be in the tens of thousands. Renegotiating the length of your home loan can help you pay it off quicker and own your home sooner.