Timing is everything with home refinancing. It could be the easiest way to save thousands of dollars over the life of your mortgage if you know when to refinance. In this blog, we will take you through a step-by-step guide as to when your ideal refinance opportunity lies and what the signs you need to observe are, also how it gets easier when done by a professional refinance mortgage broker.
Refinancing Explained
Refinance involves paying off the current mortgage and you usually get a different interest rate or term. You want to have better terms that fulfil the present financial position. When market conditions or personal circumstances change, many Sydney homeowners think about trying to refinance, but it is not always the right time for everyone.
But when is the perfect time for refinancing your home loan?
1. When Interest Rates are Low
It’s common knowledge that refinancing can be a good move when interest rates lower. This happens when the cash rate gets cut by the RBA or the market rates get lower. You can reduce your monthly payments and potentially save thousands each year over what could be the remaining life of the loan by securing a lower rate.
The most obvious impact comes in the form of lower repayments: if you refinance from say 5% to a loan with a 3% rate, your repayments will be less each month, hence freeing up cash to either save that amount more every month or pay off the debt even quicker. On the other hand, refinancing does come with costs: discharge and application fees. You must compare the savings against these costs to work out whether refinancing is worthwhile.
2. When You Want to Switch Loan Terms
Is your current mortgage loan term 30 years? Do you want to pay it sooner? Refinance and switch to a 15 or 20-year loan term. This increases your monthly payments. But it will let you save on interest in the long run.
Are you tight on funds? You can change to a loan with a longer term so you’ll have less to pay monthly. This frees up cash for daily spending. But you’ll also pay more in interest down the line.
Not sure about your options? A refinance mortgage broker can walk you through them and help you understand which loan term will fit your goals and your budget.
3. When Your Property Value Increased
When property prices go up, your home equity goes up. This, therefore, makes accessing equity a prudent thing. But what exactly is it? This is the difference from sale price vs mortgage that you still owe for your property.
In other words, let’s assume your house is currently valued at $1.5 million and you still owe $900,000. Your equity amount is $600,000. Refinancing could help you access some of this equity. Use that for expenditures such as home refurbishments, purchasing investment property or to merge your current debts.
But be careful as every dollar of equity you use increases how much money you owe the loan provider. This means you will pay more in the long term.
4. When Your Credit Score Has Improved
Has your credit score gone up? Then you may qualify for better interest rates or loan terms. Lenders are more likely to give you more competitive rates. This will save you thousands of dollars in repayments.
Better yet, check your credit score before refinancing. Ensure that you’re in a good position. Make sure your payments are consistent. Pay off your debts. Remove defaults from your credit file. You can also work with a refinance mortgage broker as this is the best time to negotiate better loan terms.
5. When You Want to Switch Your Loan
Do you want a different type of loan? You may want to lock in a fixed rate if you’re on a variable rate and you expect rates to increase. Fixed-rate loans provide stability. This is because your repayments remain the same regardless of market changes. Ultimately offering peace of mind and easier budgeting.
Refinancing to a variable rate could also lower your repayments if you’ve been on a fixed rate. This only works if market rates have dropped. But you must keep in mind that variable rates fluctuate. So there’s a level of risk involved. A mortgage broker in Sydney can help weigh the pros and cons of both options.
6. When You’re Coming Off a Fixed Term
Many homeowners are placed on a higher variable rate after their fixed term expires. Meaning they’ll have increased repayments. Refinancing in the last few months of a fixed period gives you an opportunity to lock in a more competitive rate. This ensures that it becomes effective before the variable rate applies.
This is when you should work with a refinance mortgage broker. They can help you compare rates across various lenders.
7. When You Want to Consolidate Debt
Do you have personal, credit card, or car loans? Refinancing your home loan can let you combine everything into a single monthly repayment. Home loans usually attract a lower interest rate than other types of credit. This way you’ll pay less in interest. You can also juggle your debts better.
But keep in mind that doing this might mean that you have to pay more in interest in the long run. Especially if you extend the terms of these debts.
8. Getting Rid of LMI
Did you borrow more than 80% when you applied for a home loan? That means you have to pay for Lender’s Mortgage Insurance. But it doesn’t mean you have to for the entire loan term. Has your property’s value increased? Or have you paid a significant portion of your loan? Then refinancing might be a good move. You can get a new loan signed based on the new value of your home. This reduces your LVR. With that reduced, you can potentially avoid paying LMI altogether.
Find a refinance mortgage broker to assess your LVR and see if you can get out of paying LMI.
Partner with AFMS Group for Expert Advice
Refinancing can be extremely useful in saving money and adapting your loan to meet your current financial situation. However, knowing precisely when and how to take the exchange is crucial in making your choice. AFMS Group can help you do it. Our group has been providing seasoned expertise to homeowners for years. We can help you lower your interest rate or access your equity. In addition, AFMS Group can help you extend loan term. So contact us if you want to learn more about our services.