When you are unsatisfied with your home or business loan rate one thing you can consider is a mortgage refinance. There are a number of things you need to way up when considering a mortgage refinance.
What Is Mortgage Refinancing?
What outcomes can I achieve from refinancing my mortgage
Mortgage refinancing is where you switch or change your home or business loan, either with a new lender or renegotiating with your old lender. People turn to mortgage refinancing to get a lower interest rate or when their circumstances change. Another use for mortgage refinancing is to consolidate your debts into easier repayments when you have a number of debts you owe. Some refinancing can mean costly fees, so it’s important to consider whether a mortgage refinance is good for you over the long term.
The way most refinances work is that the original mortgage is bought out or paid off by taking out a new loan. This loan usually has a lower rate and often less fees. A loan can also be changed by the bank you currently have your home loan with which involves simply switching over the terms of the loan. These transitions can be handled by an agency such as Free Yourself From Debt who can seek out the best deal possible for you and negotiate with various lenders for a better deal.
If you find yourself in a situation where you are struggling to pay your monthly mortgage payments, then a refinance could be a perfect solution for you. However, a lot of Australians make the mistake of refinancing their mortgage without properly knowing what they are doing or whether it will help them over the long term. This is where it is a good idea to talk to a mortgage consultant about how you can utilize a mortgage refinance to your benefit.
Most people choose to refinance when the equity in their home, that is the difference between the amount owed on to the company in control of the mortgage and the actual worth of the home. A mortgage refinance can be used in this way to access that equity by taking out a large mortgage which can be used to consolidate debt, purchase new things or renovate.
Is Now The Right Time To Refinance?
When is the right time and what financial situation should you be in to refinance?
Before you refinance your home loan it’s important to consider a number of factors that could affect changing your lender. Make sure you are considering the term of the loan; how long will it take to repay? Is it a variable or fixed interest rate? Make sure you have job security and look out for warning signs from lenders, you want to have the best service possible when dealing with a loan.
Most financial expert agree that the right time to refinance, if you are looking to do so, is when the interest rate is at least two percentage points below your existing mortgage rate and the refinancing cost are low or affordable.
The time at which you refinance also depends on why you want to refinance. Obviously you will want a better rate, but maybe you are refinancing to consolidate your debts or to renovate. If you are looking to do these things then the rate and fees might be lower down on your list and you could be happy to continue to pay what you are currently paying whilst accessing some of your equity.
When considering refinancing, it is a good idea to first approach your current lender. If you have been with the lender for a number of years and consistently make on time repayments, they could offer you a better deal rather than seeing you go to another lender.
Some lenders also charge a penalty if you pay of the loan early. If this is the case with your home loan you should consider refinancing with your current lender, ask if they are able to wave the charge if you stay with them. Remember if you pay this penalty it should be considered in the overall cost of the loan as it will take you longer to ‘break even’ on the home loan.
Why Should You Refinance Your Mortgage?
Some of the reasons you might consider refinancing
There are a number of reason why you should consider a mortgage refinance. Depending on your personal circumstances you will need to decide whether a mortgage refinance is right for you. The main reasons you might be looking to refinance your mortgage include: To consolidate your debts; to get a lower interest rate; to get lower fees; to access the equity in your home; to renovate; and to gain more flexibility. You may have one or more of these reasons for refinancing your mortgage, but it’s important to remember that some of these require certain circumstances to be a viable option.
Remember that refinancing your mortgage is not always the right step to take and you should consider talking to a professional financial adviser before you take the plunge. It's important that you consider all the possible implications of your refinancing with some of these implications being more obvious than others that are hidden in the fine print of your future or current home loan. You can all call or email Free Yourself From Debt for more information on mortgage refinances and what they involve.
Free Yourself From Debt is able to handle your mortgage refinance and get you the best possible deal on your interest rate and fees. We work with you to see what you can afford, assess your credit rating and plan out your ability to pay off the loan over a number of years. If you are refinancing to consolidate your debts (which we will talk more about below) we can help guide you through this process, having a number of years’ experience in negotiating with creditors and lenders to reduce debt payments and stop the harassment.
Using A Mortgage Refinance To Consolidate Your Debts
You can use a mortgage refinance to consolidate your debts into one payment
One reason to refinance your mortgage is so you can consolidate your debts. When you have multiple debts such as a home loan, personal loan, credit card or other high interest loans, you can consolidate all your debts into one, meaning you have one monthly repayment. The benefits of this is that your mortgage will almost always have a lower rate than other high interest loans. This means that when you consolidate all your debts with your home or business loan, you will have a lower interest rate across the board. It also makes it easier to pay due to the convenience of only having to pay one repayment a month, rather than having it spread over a number of different lenders.
Debt consolidation can be an extremely effective way to get yourself out of debt. You can access the equity in your home to pay off your other debts and consolidate them into your home loan. If you don’t have any equity in your home or the equity you do have doesn’t cover the debt, then you can increase the amount of the loan to pay of the rest of the debts.
However, it is important to commit to paying off your debt, as you are consolidating shorter term debts such as your credit card debt with your long term mortgage debt which can take up to 30 years to pay off. In order of debt consolidation to work and save you money, you need to make regular repayments. A debt counsellor can help you through this process, helping you plan and budget for your monthly payments and advising you as to whether you will be able to keep you with the repayments.
When considering debt consolidation, you must be ready to commit to reducing your debt. This means planning a flexible budget that you can stick to and having a job that is stable. If you fail to pay off your debts by saving, then you can end up paying a lot more than you would have due to the length of the loan. Free yourself from debt can help you consolidate your debts by negotiating with your lenders and getting you the best deal possible.
To Secure A Lower Interest Rate
Get a lower interest rates by refinancing your mortgage
One of the main reasons people choose to refinance their mortgage is to secure a lower interest rate.The generally accepted time to refinance is when the interest rate has dropped at least 2% from when you got your loan fixed. This could also be used when you have a variable loan and choose to fix your loan.
Reducing your interest rate does more than just save you money on your home loan. It also increase the amount of equity you will have in your home and reduce your monthly payment through the lower interest rate. If you have a good credit history you may also be able to decrease any fees you are being made to pay on the loan.
Refinancing can come with some costs, fees for getting out of your loan early or changing providers can hit your bottom line and it could take longer to break even on the refinance. This needs to be considered as if the cost of refinancing out weighs the savings you are likely to make you may want to rethink your home loan refinance.
The mortgage market is extremely competitive with the mortgage you signed two years ago most likely being out dated, with better options available to you now. Free Yourself From Debt can help you find the best deal for your circumstances. We are constantly scanning the market for the best deals for our clients, with a number of recommendations for various situations ready on hand for your needs.
You can save thousands over the life of your home loan by switching at the right time and to the right deal. Talk to Free Yourself From Debt Today about refinancing options and lowering your interest payments to save yourself thousands over the term of your loan. Plan smart, compare rates and you could pay of your loan quicker and for less money than you are currently expected to.
Loan refinancing is done to reduce monthly repayments and to make it quicker to repay the loan. However, it doesn’t always work that way, with additional costs and a loss of features being a large factor. You need to also make sure that the refinance is going to lead to you paying less over the long term otherwise you could end up paying more. Make sure you talk to your financial counsellor about getting the best rate as possible with low fees.
Refinancing To Renovate Your Home
Access the equity in your home so you are able to renovate
Refinancing is a great way to raise capital for a renovation. Many lenders offer loan deals that have construction or renovation loan built in such as construction home loans and line of credit home loans. You can also use a refinance to access the equity in your home. When your home is valued at a higher cost than your mortgage, you can refinance to access that equity and use that to pay for renovation costs.
You could also move to an interest only loan, where you only pay interest owed on your loan and don’t make any repayments. This will mean you will have more capital saved, which you can spend on the renovation but will extend the life of your mortgage.
You can also use a refinance to add equity to your home, as renovations often involve increasing the overall value of your home. You are able to access this future equity to pay for your renovations. You propose how much the value of your house will be worth after renovations which then often allows you to access that value. Its important to remember that doing this also increases the amount of the loan and the loan term or time it takes to pay off the loan.
The equity in your home can also be used to pay for other things such as cars, investment property, stocks and education. If you have equity already available in your home you can access it to make major purchases. This means that all your debts stay tied up to the same loan instead of getting out separate loans to pay for things. This can save you on student loan, car loans and second mortgage. It is important to look at the current rate and consider it is the best and cheapest way to purchase expensive items.
Refinancing Your Mortgage To Gain More Flexibility
Get a more flexible mortgage through refinancing
When you first enter a home loan, most people go for a simple loan so they can concentrate on making repayments without any complex benefits and extra fees. However, after you have been paying off your mortgage for a while, it can be a good idea to look at those extra features and see if they can benefit you. This offers more flexibility and can help you to pay off your loan faster. Things such as an offset account or a split facility loan can lead to cheaper and quicker repayments.
An offset account is an account that is paired with a home loan. The amount in the offset account is then taken off your mortgage interest repayments. For example if you have $20,000 in your mortgage but then have $5,000 in your offset account, then you only pay interest on $15,000 of your mortgage. Many people look to offset accounts as a great way to offset their interest as they are paying interest on a lower amount as well as having savings remain in the bank.
A split facility loan or split mortgage is another benefit you can access after a few years with a loan. It allows you to split your loan between a fixed and variable interest rate which can be very handy when the market is volatile. How you split the mortgage between the two is completely up to you. Any mortgage is a gamble, this simply allows you to have two separate interest rates in play, hedging your bets in a way.
You might also want to consider decreasing the time of the mortgage. If you are earning more or simply can pay more than at the original term of the loan then you could switch to paying your loan over a 15 year period rather than a 30 year period. If you are able to pair this with a lower interest rate this can mean substantial savings over the life of the loan. Consider if you would be able to afford a larger payment and talk to a financial specialist at Free Yourself From Debt about potentially getting a much more flexible and better deal on you current home loan.
Refinancing When You Are Unable To Afford Mortgage Repayments
Refinancing can be used to change your loan to make it more affordable
If you are no longer able to afford your mortgage repayments, you could turn to a refinance to get smaller repayments over a longer period or you could switch to a loan with a lower rate. Of course extending the life of the loan will lead to more interest to pay over time. It can often be better to talk to your lender about potentially getting extra time to sort out your repayments. If you are refinancing for a lower interest rate, remember that there can be added fees and costs.
When you are unable to afford your repayments it can be very beneficial to change the life of your loan. While this will increase the length of the loan and hence usually the total cost of the loan it may be something that you need to do in order to make repayments on time. Unfortunately situations can arise that make paying back your original loan difficult. This can come in a variety of form including medical, losing your job or paying for repairs to your home or car that were unexpected. Whatever the reason, if you don't see yourself being able to get back to the same financial level you were originally at you may consider increasing the length of your loan to make repayments more manageable.