What are the pros and cons of refinancing my mortgage?
Allen Finance in South Bunbury, Western Australia is highly experienced in refinancing home loans. We offer our clients a refined and clear process from start to finish. Here we outline the pros and cons of refinancing so you can decide whether it is right for you. We always encourage prospective clients to get in touch so we can better understand your financial position.
What does refinancing mean?
Refinancing your mortgage is the process of replacing your current mortgage with a new one. It usually means having a different principal amount and interest rate. The new lender pays off the old lenders loan with the new one, usually leaving you with more favorable terms, such as a lower interest rate, more funds or reduced repayments.
When should I refinance?
There are no exact guidelines for when is a good time to refinance. There are environmental factors as well as personal factors which affect this. The home loan market changes frequently and alongside it lenders and interest rates fluctuate.
Your own financial position can also dictate whether it is in your best interests timing-wise to choose to refinance.
To better understand if it is an optimal time for you to refinance, speak to the Mortgage Brokers at Allen Finance about completing a health check on your existing loan.
Advantages of refinancing
Lower interest rates | If interest rates have come down since your initial home loan procurement, then you could benefit from a lower interest rate with your new mortgage. This means reduced repayments each period.
Changing your rate structure | Depending on your new lender, you could move from a variable rate mortgage to a fixed rate or from investment to owner occupied if your circumstances have changed - depending on what works best for you.
Reduce the lifetime of your mortgage | If you refinance and receive a better interest rate and terms and conditions, you have the potential to pay off your mortgage faster. For example, if you have 22 years remaining on your initial loan, you may be able to refinance by choosing a 15-year or 20-year mortgage. Your mortgage broker will be able to assess early exit fees and other terms and conditions that may affect this.
Accessing Equity | If your property value has increased or loan balance has reduced significantly since your original loan setup you may be able to increase your loan to complete debt consolidation or cash out for things such as vehicles, holidays, weddings & cosmetic renovations.
Disadvantages of refinancing
Fees | Whilst these are not all applicable to every refinancing application, there is a list of costs and fees that can accompany a new home loan. Your mortgage broker will be able to advise which products are a viable option for you with the lowest costs incurred. Some fees may include:
Mortgage application fees
Valuation fees
Discharge fees
Break costs
Settlement fees
Registration fees
Exit fees
Appraisals | Lenders who are considering taking you on as a borrower will order an evaluation or appraisal of your home. If you have lived in your home for an extended period of time, it may not always be clear how much it is worth. An undervalued appraisal might change what the assumed equity you have in your home is, which in turn can affect the new loan approval.
Application process | The process of applying for a new loan means that banks and lenders will analyse your financial position and credit score to better understand if you are a low-risk borrower. If your credit score has dropped, you might not qualify for the lowest rates. Allen Finance will walk you through all of the documents needed to give the lender peace of mind that you are a strong candidate for the loan.
If you are curious about whether refinancing might be a viable option for you, get in touch and an experienced mortgage broker from Allen Finance will get back to you.
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