Top 10 things to consider before refinancing your mortgage
Last updated on May 10th, 2023
Refinancing your mortgage can be a wise financial move that allows you to take advantage of better interest rates, lower monthly payments, or access the equity in your home. However, before you jump into refinancing, it's important to consider several factors that are specific to the Australian market. This article highlights the top 10 things to consider before refinancing your mortgage in Australia.
- Current Interest Rates:
The prevailing interest rates play a crucial role in refinancing decisions. Keep a close eye on the current interest rates in Australia. If they are significantly lower than the rate on your existing mortgage, refinancing may be a viable option.
- Loan Comparison:
Compare the terms, conditions, and interest rates of different lenders in the Australian market. Assess the benefits and potential costs of switching to a new lender. Take note of any fees associated with refinancing, such as application fees, valuation fees, or legal fees.
- Loan Repayment Terms:
Consider the impact of changing your loan repayment terms. While extending the loan term can lower your monthly payments, it may increase the overall interest paid over the life of the loan. Shortening the loan term, on the other hand, can help you save on interest but may result in higher monthly payments.
- Equity and LVR:
Evaluate the equity in your home and its loan-to-value ratio (LVR). Lenders often require a minimum equity level to qualify for refinancing. Higher LVRs may also lead to additional costs such as lender's mortgage insurance (LMI). Understanding these factors can help you assess your refinancing options.
- Credit Score:
Your credit score plays a significant role in refinancing decisions. A good credit score increases your chances of getting a better interest rate and loan terms. Review your credit report, correct any errors, and take steps to improve your credit score before applying for refinancing.
- Financial Goals:
Clarify your financial goals before refinancing. Are you looking to reduce your monthly payments, pay off your mortgage sooner, consolidate debts, or access equity for other purposes? Having a clear objective will help you choose the right refinancing option to align with your goals.
- Exit Fees:
Check if your current mortgage has exit fees. In Australia, exit fees were banned for new loans after July 2011. However, some older loans may still have exit fees attached. Consider the potential costs involved in exiting your current mortgage before refinancing.
- Mortgage Features:
Evaluate the features of your existing mortgage and compare them with potential refinancing options. Consider features like offset accounts, redraw facilities, and the ability to make additional repayments without penalty. Assessing these features can help you determine if a new loan offers better flexibility and benefits.
- Expert Advice:
Consulting with a mortgage broker or financial advisor can provide valuable insights into the refinancing process. They can help you navigate through the complex details, analyse your financial situation, and identify the most suitable refinancing options based on your needs.
- Costs vs. Savings:
Finally, assess the overall costs versus savings of refinancing. Calculate how long it will take to recoup the costs associated with refinancing through the savings generated. Consider your future plans and evaluate whether the potential savings outweigh the upfront costs involved in refinancing.
Refinancing your mortgage in Australia requires careful consideration of various factors. By understanding the current interest rates, loan terms, credit score, equity, and your financial goals, you can make an informed decision. Remember to thoroughly compare lenders, assess fees, and seek expert advice to ensure that refinancing aligns with your long-term financial objectives. With careful planning, refinancing can be a beneficial strategy to improve your Mortgage.
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Read more:
Can you shorten your home loan term?
Consequences of Late Home Loan Repayments
How does rising inflation affect your borrowing power?
7 Ways to Pay Off Your Mortgage Sooner
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Speak to a mortgage broker today about the top 10 things to consider before refinancing your mortgage.
