The past couple of years have seen a major upheaval in the lending landscape. Consecutive interest rate rises have driven mortgage repayments up and tightened lending criteria.
Coupled with the increasing cost of living, there’s no doubt this has made things more challenging for home owners, prompting many to look at how they can claw some of their money back by refinancing their home loans.
Certainly, done correctly, switching loans can add up to big savings over the long term. So, here’s the lowdown on how to refinance and find a loan that’s right for you.
Know your budget
First up, do your sums to give yourself a comprehensive picture of your living costs. For example…
- What money is coming in and going out of your household each month?
- How much you can you actually afford to put towards your mortgage?
- Where could you potentially cut back?
Also don’t forget to factor in any future changes like having a baby, and/or major costs like the purchase of a new car.
Plus it’s important to ensure your budget is as accurate as possible. Don’t underestimate your spending or your debts, or you could be damaging your chances of securing a loan, noting that lenders are also likely to cross-check your credit cards to assess your creditworthiness.
At this early stage, it also pays to get your documents in order. Lenders will want to see payslips, bank and credit card statements, and proof-of-identification documents. So have them ready to go.
Set your goals
The next step is to take time to consider your future financial goals over the next two, five or 10 years. For example, are you planning to renovate or move homes, or consolidate your debts, or do you want to ramp up your investment portfolio? All of these considerations will impact how you approach your refinancing.
Focus on more than the rate
Most home owners want to save money. Typically this involves comparing rates when weighing up different loans. But there are many other factors you should take into consideration aside from the rate. For example, it’s worth thinking about what you might need as far as banking structure or support around meeting your future goals and objectives. Does your loan allow you to consolidate debts? Can you access your home equity for renovations or investments? Does it have features such as a redraw facility or flexible repayment options?
Do your research
There’s an overwhelming amount of information online about how you can refinance your mortgage, including home loan comparison sites. So it might be worth talking to a mortgage broker for some advice to help you navigate the best options for your personal circumstances.
One of the most important factors to consider is the cost of exit fees versus the savings you will potentially make with a new loan. Not all loans come with break costs and many financial organisations now also offer cashbacks for new customers to help them pay potential break costs. But if break costs and exit fees do apply, make sure the benefits of refinancing outweigh the costs of refinancing for your circumstances.
Future-proof your loan
As much as you’d like them to be, home loans are not set-and-forget exercises. Doing regular health checks on your home loan is a great way to make sure it's still working for you. If your circumstances change or you want a better deal, you could consider refinancing. So try to set an annual mortgage reminder to explore how your current home loan compares to any deals out there as you might be surprised at the savings you can find.
Conclusion
When done smartly, refinancing can do you and your bank account a world of good. But remember, just like with your first mortgage, when it comes to refinancing, there is no magic solution. It's a matter of finding a loan that meets your current and future needs – both personally and financially.
The advice, opinions and insights of this article are general in nature and based on Dennis Family Corporation’s analysis of past and current market trends as of the date of this article which are not necessarily indicators of the future performance of the market. This article does not take into account your personal financial circumstances or objectives and may not always be entirely accurate, complete or current. We recommend speaking to a financial advisor or mortgage broker before making any financing decisions with respect to your existing home loan or any new home loan.