If you look at the figures given by most media. Once Australians get a home loan, they usually stay and don’t look at their loan after it’s settled. This is usually because it was so painful to get to start with especially if you did it yourself!
Let’s be honest refinancing can be royal pain the neck! It doesn’t have to be this way. Especially if you use a good Finance broker.
Firstly, before you refinance, we need to look at your current loan. Is the product you were given initially still valid? Many clients I see are on old products that their lender no longer provides and so you are not getting the most out of their loan. In cases like this it can be as simple as a switching form to get a better product and rate without having to go through the hoops of a new loan.
In other cases, if the product is still valid, the lender will often price a new rate and increase the discount given so by reducing the are you are paying. Again, this doesn’t require a whole new loan application.
In most of these cases even if the rate reduction isn’t equal to the cheapest but close it’s sometimes worth staying to avoid the cost of a refinance. Health checks on your loan are about saving you money and usually cost you nothing especially when you use a Finance Broker.
When you refinance you can expect to pay around $800 in discharge costs from your current lender. This covers the legals and document production on their side of things. When I build a refinance application, I will usually allow $1,500.
Why you ask? Well, there is nothing worse than coming to the end of the process and finding that $800 isn’t enough to cover things. A Bank/solicitor won’t often give you the exact costs until about 2 days before it settles and there is nothing worse than finding out you are short of funds. Then there’s mad scramble to find the extra money to make it all happen on time. If there are any surplus funds, they can be directed to go wherever you like. Into the loan account or into your offset.
Aren’t I charging more than what is required though? Or trying to make an extra buck? The answer here is quite simply no. If there was any surplus in the loan it gets directed back into the loan or the offset. The bank only pays me on what is drawn down not the on the amount of money requested.
Refinancing can also take time. Generally, the process takes about 6 weeks from the time of application until it gets settled. Refinance applications are not usually seen as a priority in the banking queue. Unless there is a purchase involved.
Time is usually a factor if you are making a purchase AND refinancing your old loan. In cases like this we will always request a longer settlement period than the usual 28 days. This is what you pay your solicitor for. I will always keep you and you solicitor, in the loop as where things are at of if there are delays. The only time you are usually charged penalties is when the vendors solicitor is not advised of the updates and or delays.
When should you refinance?
There are several factors here. You would refinance if there was going to be a saving on your current repayment. Allowing you to make greater inroads into paying your loan down. Refinancing a loan for a saving of 10 or 15 basis points is often not worth your while. The cost to move will often outweigh the savings.
You may need to refinance a loan because your Interest only period is about to expire and the lender wont extend the period or allow a restructure. We can often do this and still save you money on rate and repayment.
Being able to consolidate debt is a factor I quite often see in a refinance. However, it is not always the best thing to do. The same as buying a depreciating asset like a car using equity from your home is not always the greatest idea. Where consolidating debt can be of great help, is where it allows you to reduce that consolidated debt much faster. Providing of course that you don’t use the full 30 yr term. Sometimes a split on the loan can be helpful in focusing on paying out that small chunk.
If you know there is something coming up in the future, like a baby, or if you have just found out about an illness is a time you should look at a refinance. When these things happen, you are not usually focused on your home loan. However, these are the times when you should. Often your income will be reduced for a certain period and refinancing can assist with the reduced cash flow.
Your Mortgage Broker will be able to assist in all cases and be able to advise you of the best ways forward. There are many times when a mortgage broker can intervene and save you money without needing to refinance away from your current loan.
When shouldn’t you refinance?
This one is easy! Don’t refinance if you are on a fixed loan, and you are still in the fixed period. This can be very costly. If this is necessary, we will always check with your lender what the payout is. Then you can decide if it’s worth it. The same goes here if you are thinking of selling during a fixed period. Any gains made here can very easily be eaten up in payouts.
The other time is as I said before. If the cost of moving outweighs the savings in the first year or two then it’s not worth moving at all.
This what your Finance Broker is here for. I am here for you, as a service, to keep the lenders honest. I will make sure you get the right lender, rate and product for your situation. I am only a call or an email away.
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