Have you had a look at your home loan statement lately? Have you noticed that lenders have slowly raised your interest rate? The major lenders – CBA, ANZ, Westpac and NAB have lifted their variable mortgage rates last September 2018 by at least 15 basis points. If your rate has gone up above 4%, what will you do?
My advice is to go back to your lender or mortgage broker and try getting the rate reduced. If your current lender isn’t too thrilled to provide you the same rate as what they give to new clients, it’s time to move to another lender. The good news is that banks are hungry for your business. The competition is cut throat and banks are dangling cashbacks and frequent flyer points to get clients to switch to them.
Refinancing is a smart move for homeowners to get the best home loan deals. It is especially smarter for homeowners with high credit scores and great employment history to refinance a home loan with 80% loan to value ratio. With a lower rate and less fees, you can save money allowing you to pay off your home loan sooner.
Just remember that each lender has their respective conditions and credit policy. For a few lenders, the rebates and cashbacks are only available for owner occupied properties and some may require that the loan amount is within 80% of the value of the property being refinanced. A finance broker can help you navigate through these conditions and credit policies. They can also order a valuation upfront so you know beforehand if refinancing is possible at 80% loan to value ratio avoiding you from paying loan mortgage insurance.
There are lots of reasons to refinance your home loan. You just want to save money on interest and fees and refinancing will help you achieve your goal of lowering your repayments and paying off your home loan sooner. You would like to access the equity of your home for reasons such as renovation and upgrade or future investment purposes such as buying an investment property. You may also refinance to consolidate your credit card and personal loan debts and you can focus on having one single payment for all your loans. Refinancing to consolidate debts only makes sense if you are consolidating your multiple high interest rate debts into one lower interest rate loan. My least favourite reason to refinance is releasing the equity of your home to fund a motor vehicle purchase or a lifestyle purchase such as boats and caravans. Why? Because these are purchases that depreciate over time. It does not make sense to buy a motor vehicle and finance it together with your home loan on a 30-year loan term. Can you imagine still paying the loan another 20 years on a motor vehicle that has no value at all in 10 years’ time? A good finance broker who keeps his/her client’s best interest at heart will consolidate personal loans, car loans and credit card debts into one loan on a 5-year loan term or less and at a lower rate.
How does refinancing work?
Refinancing means paying out your current loan with a new loan with the goal of reducing your minimum repayments and your loan term. Just remember that refinancing comes with a cost. The cashbacks will help cover the cost of refinancing. Ask your finance broker to crunch the numbers for you to find out if refinancing is worth your time and effort. A finance broker who looks after his/her clients’ interests will negotiate a better deal for you and reduce your fees and charges.
Debt consolidation and refinancing is not easy nowadays. You have to provide 6 months’ worth of clean bank statements with no entries showing late payment fees, defaults or dishonour fees. For those refinancing in their 50s, there has to be a very clear exit strategy because you are not expected to work until you are 80 years old. Refinancing has to make sense and should clearly benefit the applicants and not put them back financially.