Refinancing can be done with your existing lender (called internal refinancing)
You can refinance through your current lender — provided you qualify — because banks generally want to keep their customers. If you’re looking to lower your monthly mortgage payment, refinancing with your current lender could save you the hassle of switching financial institutions, filling out extra paperwork and learning a new payment system. Perhaps you took out your home loan 2 years ago and you are not in a great financial position at that time. It is possible that your situation has changed and you are in a much better financial state today that will allow you to access the current bank’s lower rates. An example of this kind of situation will be the self-employed loans. Usually, rates for these alt doc loans start at 4%. If you have been lodging your tax returns the last 2 years, your income may qualify you to apply for a full doc loan which can now attract rates starting at 3% or even rates starting at 2%.
Or you can refinance to a new lender offering a better rate or a better solution
Today’s home loan market is very competitive, and there might be a loan out there, offering the features and flexibility you want. Before you make any decisions, however, be clear on your reasons for refinancing.
Refinancing can be a serious financial decision with a number of variables to consider. A good mortgage broker can help establish the type of loan that may work best for you, how much you can borrow and any extra features you want. They can then gather information from many different lenders and help assess the costs and benefits associated with each loan.
Before you make a decision about refinancing your loan, your mortgage broker should first explain the following:
- How much does it cost to refinance? Consider the fees and charges such as upfront fees and ongoing fees with the new bank, discharge fee with the exiting lender and government fees
- What is your loan term? You may have 20 years left in your existing loan but your mortgage broker puts you back to a 30 year loan term to reduce the monthly repayment, thus making the new loan look cheaper. The longer you have a loan, the more you’ll pay in interest. If you do decide to switch, negotiate a loan with a similar length to your current one.
- Are you really refinancing to get a better rate and saving money? Sometimes lenders offer introductory rates also known as honeymoon rates to get your business but these discounted rates do not last 30 years. It is also possible that you get a lower rate with the new bank but the cost to refinance will cost you thousands.