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To Refinance Or Not To Refinance – That’s The Question!
Refinancing involves obtaining a new loan to replace an existing loan. It typically involves switching lenders and obtaining a new loan with different terms, such as interest rate, repayment period, or loan amount.
The primary purpose of refinancing is to secure more favourable terms, potentially reducing monthly repayments, obtaining a lower interest rate, or accessing additional funds.
Refinancing may also be done to consolidate debt, change from a variable rate to a fixed rate (or vice versa), or change other loan features. The existing loan is paid off in full using the proceeds from the new loan, and the borrower starts making repayments according to the terms of the new loan.
Renegotiating, on the other hand, involves working with the current lender to modify certain terms of an existing loan. This approach focuses on altering specific aspects of the loan agreement without entirely replacing it with a new loan.
Renegotiation may involve discussions with the lender regarding interest rates, repayment terms, or other loan conditions.
The purpose of renegotiating is to achieve more favourable terms without going through the process of refinancing and changing lenders. It is a way to potentially lower interest rates, extend the loan term, or negotiate other adjustments that can help improve the borrower’s financial situation.
Both approaches aim to improve the loan terms, but refinancing involves replacing the loan entirely, while renegotiating focuses on adjusting specific terms of the existing loan agreement. The choice between refinancing and renegotiating depends on individual circumstances, such as the borrower’s goals, current loan terms, and the potential benefits offered by each option. It’s advisable to carefully consider the costs, benefits, and potential impact on your financial situation before deciding which approach is most suitable for you.
You don’t need to wait for a trigger to refinance. The smart thing to do is to strike when good refinance offers are available. A cashback offer is great, especially if you plan to keep your home loan for up to four years. A lower interest rate might be a better option if you plan to keep it for longer. If you are refinancing to borrow additional money to invest, renovate or build then there is no best or worst time to refinance.
One of the primary reasons people refinance is to secure a lower interest rate on their loan. By refinancing to a loan with a lower interest rate, borrowers can potentially reduce their monthly repayments and save money over the life of the loan.
Refinancing can help borrowers lower their monthly repayments by extending the loan term. While this may result in paying more interest over the long run, it can provide short-term relief by reducing the immediate financial burden.
Refinancing can be a useful strategy for consolidating multiple debts into a single loan. By combining high-interest debts like credit cards or personal loans into a refinanced mortgage with a lower interest rate, borrowers can simplify their finances and potentially reduce their overall interest payments.
Homeowners with built-up equity in their property can tap into that equity by refinancing. This allows them to access a lump sum of cash for purposes such as home improvements, education expenses, investments, or debt consolidation.
Refinancing offers an opportunity to change loan features to better suit a borrower’s needs. For example, switching from a variable rate to a fixed rate can provide stability and predictability in repayments.
Refinancing to a loan with a shorter term or higher repayment amounts can help borrowers pay off their mortgage sooner and save on interest payments over time.
The 9 steps to follow when you refinance.
Is it for a better interest rate, reduce your repayments or access equity? Knowing this will make it easier to achieve your outcome and subsequently choose the right product.
You’ll want to assess your existing loan terms, interest rate, repayment amount, and any applicable fees or features. Consider your financial goals and determine why you want to refinance.
There are a number of fees to consider and each lender and product is different.
Research different lenders and loan options to find the most suitable refinancing options for your needs. Compare interest rates, loan features, fees, and repayment terms. Online comparison websites and mortgage brokers can be valuable resources for finding competitive deals.
Generally you’ll want at least 5%.
Prepare the necessary documentation, which typically includes identification, income verification (such as payslips, tax returns, or financial statements), bank statements, and information about your existing loan. Lenders may have specific document requirements, so check with them for the exact list.
We’ll help you find the best deal for your unique circumstance.
Complete the application process for the new loan with the chosen lender. You will need to provide the required documentation and complete the necessary forms. The lender will conduct a credit check and assess your financial situation to determine your eligibility for the new loan.
The lender may arrange for a valuation of your property to determine its current market value. Based on the valuation, the lender will assess your application and decide whether to approve the loan. Some lenders will accept a digital valuation.
If your refinancing application is approved, the lender will provide a loan offer detailing the new loan terms, including the interest rate, repayment amount, and any associated fees. Review the offer carefully and seek clarification if needed. If you accept the offer, you will need to sign the loan documents and arrange for settlement, where the new loan pays off your existing loan.
Inform your current lender that you are refinancing and provide them with the necessary details of the new loan. They will provide a payout figure, which includes the outstanding balance and any applicable fees. Begin making repayments on the new loan as per the agreed terms. Update any automatic payment arrangements or direct debits to ensure they are directed to the new loan account.
It’s important to note that the refinancing process may vary slightly depending on the lender and your specific circumstances. It’s recommended to seek advice from a mortgage professional or financial advisor to guide you through the process and ensure it aligns with your financial goals. They can assist in comparing loan options, negotiating with lenders, and managing the refinancing process effectively.
It’s no secret that banks often offer better interest rates to new customers than existing ones.
You could ending up ‘paying’ a ‘loyalty tax’ and miss out on discounts lenders give to new customers. You can always remind your lender of your loyalty but don’t expect it to be rewarded.
You should always be careful to read and understand the fine print. There can be conditions such as interest-only loans being ineligible, loans needing to be advanced before the date an offer expires or policy clauses.
A lower interest rate or a good cashback offer is not everything, as there could be hidden costs. Make sure you know the full picture of the costs involved. You need to pay a discharge fee with your current lender, while application and valuation fees might be applicable with your new lender.
Its worth finding out if cash back offers are for per loan, per property or if there is a max rebate of only one per customer. The way banks calculate rebates can really help sway your decision especially if you can receive multiple rebates when refinancing your portfolio.
Look at the total cost of the loan less any rebate. Whether or not a refinance is worth it depends on the cost of the loan including the rate, fees and deducting any rebate over the term that a borrower will keep it for.
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