The Right Time To Refinance A Mortgage
Updated: Jun 29, 2020
When is the right time to refinance? Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances. Refinancing can also allow you to consolidate your debts or pay down your mortgage more quickly.
Another common reason borrowers look to refinance is so that they can access equity – the amount you’d get from selling your home after settling any associated loans, such as a mortgage on that property, and any other costs associated with the property. Depending on that amount, you may be able to access equity in the property without having to sell it, for example, to make home renovations or to buy an investment property.
However, refinancing is not suited to everyone. There are many different factors you will need to consider when thinking about refinancing a loan. Before you initiate an application to refinance, your broker will need to assess your needs and objectives as well as your current financial situation.
How will I know if refinancing is the right option for me?
The first step is to speak to a professional, such as a mortgage broker, about your needs and whether you can afford a different loan structure or other change to your mortgage, particularly if you have more than one property.
While saving money is often one of the biggest benefits of refinancing, it may not be as straightforward as that and careful consideration is required. A broker will need to find out about your existing loan, repayments and current loan structure along with details about your current financial situation, including your income, any other current debts and about any assets you own. The current value of the property is also taken into consideration and a well resourced broker will have access to current data that will indicate what your property is likely to be worth.
The broker will then review the various loan options and figure out whether it’s worth it for you to refinance. Sometimes it’s not worth it if it’s only going to save a couple of hundred dollars a year, particularly when you take into consideration the exit and application fees involved. But if it’s going to save upward of $1,000 a year, refinancing might be a sensible approach. In some cases, the mortgage broker can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.
Do I need to re-qualify for a loan?
With intense focus in the media on interest rates and ‘getting a better deal’, one key factor is often overlooked and that is the need to be re-approved. There is no point applying for an amazing deal if it’s not going to be approved. Not only does this waste your time but it’s also detrimental to your credit report. One of the risks of refinancing your home loan is that you may need to pay Lender’s Mortgage Insurance (LMI)* to your new lender. If switching your loan means you will need to pay LMI again, it may not be worth refinancing.
If you do decide to go down the refinancing path, working with a broker rather than going straight to a lender has advantages. Broker’s generally have access to loan options from a range of different lenders and if there’s a better opportunity for you, they’re usually able to access it.
It is important to consider that when you take up a new home loan, it can incur exit fees and may not have all the features your existing home loan has.
Have your circumstances changed?
If you had a recent major life change such as a because of a loss of income or a change in marital status, you might be looking to refinance.
If you want to refinance to lower lending costs to help you manage your monthly repayments, speak to your mortgage broker who can negotiate with your current lender for a rate suitable to your current situation.
Your broker can also help you look at alternate options to consolidate your personal loans and credit cards into the one loan. This could help you in lowering your monthly repayments, or help you keep your repayments on time and even save you interest in the long-term.
The right time to refinance varies from person to person and the circumstances at play. The best advice we can offer is that you have your situation professionally evaluated to see if a refinance could be right for you.
*LMI – Lenders Mortgage Insurance – protects the lender against potential loss.