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Refinancing your home loan
But where to start? We can help you weigh it all up.
As time marches on, situations change. Perhaps you’ve changed jobs? Or there’s a new addition to the family? Maybe you would just like a better rate? Maybe it’s the advent of school fees, or perhaps the kids have flown the coop? Or maybe that leaking shower or tired kitchen has just reached the end of its life.
A shift in circumstances may mean it is time to revisit your home finances. For many, the idea of refinancing a mortgage can be daunting. Fees and fixed versus variable interest rates need to be considered.
The right refinanced loan might help you to pay off your mortgage faster and for less, refinance debt, or upgrade and add value to your home, all of which are steps in the right direction.
This is a good time to do what we call a ‘loan health check’, whereby we compare your existing loan to other loans being offered by lenders, reviewing things like interest rates, fees and features.
Contact us or 1300 242 269
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How do I access the equity in my property?
What are the costs of refinancing?
What about falling housing prices?
Can I get a mortgage where I pay less than I’m paying now?
Can I consolidate credit card or other debts into a home loan?
How often do I make home loan repayments — weekly, fortnightly, or monthly?
What is refinancing?
Refinancing refers to the process of paying out your current home loan by taking out a new loan. The new loan often comes from a different lender, but we also refinance for people with the same lender who they’ve been using for years.
Refinancing your existing home loan can bring you substantial benefits, which may result from your changed needs or better loan opportunities now available in the market.
Loans improve over time, with new loans or promotions by lenders offering extra loan features and changed terms. Not only do loan features and pricing change, so do your lifestyle needs. Now is a good time to call us to see if there is a better loan product that would better suit your needs.
When you refinance, the new loan funds will pay out your existing loan and depending on the amount you refinance, you may have extra funds to use for a variety of reasons.
Your Time Finance Loan Consultant will take care of the process of paying out your existing loan with the lender.
Reasons to Refinance
Many people have made their mind up as to why they want to refinance, and need our help to get the loan, but by working with us, you can also find out what equity you have available, and then decide what can be done.
You can refinance for any one or combination of the following typical reasons:
- You want to get a cheaper interest rate to reduce your monthly commitments and improve cash flow
- To take advantage of new or better loan features on offer that may suit you better
- Simply paying off your loan sooner. If say, you have 20 years left on a 30-year mortgage, you might want to refinance into a 15-year loan for a long-term savings opportunity. Your monthly payments could go up, but you’ll pay off your home faster.
- For asset purchases, including buying another property to help you attain your wealth goals
- You want additional funds to renovate your home
- You want to raise cash for a lifestyle purchase, such as cars, holiday, school fees etc.
- For Debt Consolidation purposes – if you want to pay off your debts quicker and cheaper by rolling them into your home loan
- You want to roll all your accounts into one home loan account eg apply savings money to your loan – an “all-in-one” account
- You want to switch from a fixed rate to a variable rate
- You want to switch from a variable rate to a fixed rate, for the benefit of certainty of repayments.
- You want a break or holiday period of making repayments
- You want to restructure your finances and improve tax benefits
- By consolidating various smaller debts like credit cards or personal loans into one large debt, you may be able to reduce interest rates or lower your monthly repayments. Plus you only have one loan to keep track of.
How do I access the equity in my property?
Your home equity is the difference between the market value of your property less your current loan balance.
Most lenders will typically require you to have 20% equity in your property to refinance, which essentially serves as a deposit. This means that the amount of ‘cash’ or equity you can access, called your ‘accessible equity’, is normally the value of your property, less 20%, less the amount of your current loan.
Eg. Let’s say your property is worth $800,000 and that your current loan is $340,000. Ensuring a minimum 20% deposit remains in your current property ($160,000), you have a total equity value potential of $640,000 ($800,000 – $160,000), less your current loan of $340,000 is a net accessible equity position of $300,000.
With the right loan structure, you can use this amount of ‘funds’ for your new purpose.
Remember, this isn’t free cash, it’s a new loan amount, which requires new levels of loan repayments. Typically, you don’t pay interest on loan amounts you don’t draw down on.
Even if you have a lot of equity, the lenders will however, only make available an amount matching your ability to service the additional repayments.
If you can manage the extra repayments, the leveraged effect of the use of the upfront cash can enhance your lifestyle, as well as be financially rewarding.
If you don’t have 20% equity, it is possible to refinance by paying lenders mortgage insurance (LMI), but this has a cost that may defeat the purpose of refinancing.
Time to call us – we will help you understand the benefits of refinancing, how much equity you have and how to access the equity in your property.
Using your home equity
Use the equity in your property to use as a deposit or fund another property. There are tailored loans for investment property that are structured around using your property’s equity.
Investment property loans and conditions are similar but not the same as normal home loans, and often with slightly different interest rates and potentially requiring higher deposits.
How much money can I borrow?
We’re all unique when it comes to our finances and borrowing needs. Get an estimate on how much you may be able to borrow (subject to satisfying legal and lender requirements) with our clever loan options tool. Chat with us when you’re ready, we can help with calculations based on your circumstances.
What are the costs of refinancing?
Refinancing can come with some costs, these vary from lender to lender, type of loan, the amount of deposit you have, any loan ‘break’ fees, such as when switching from a fixed loan, new loan application fees or government fees.
Penalty fees could apply if you’re paying off your current mortgage early.
Fees are a part of the exercise, but these are justificable if the fees are offset by better terms, more savings and flexibility.
We’ll walk you through any fees that could apply to your circumstances.
We will position your new loan requirement to all lenders to find help you assess the benefits versus the costs to find the best loan for you.
When should I refinance?
Other than for personal investment or lifestyle reasons, it is a good time to refinance:
- when the market either goes up or down, whether in property value or in changing interest rates
- if your ‘risk profile’ changes eg. If your income stability is better and the risk factor lower compared to when you first took out your loan, then it is possible that a lender will review your new circumstances as better than when you first took out the loan and give you a better loan.
- If you can prove you have two or more years of achieving financial stability, you’re very likely to secure better terms for your refinance loan.
You will want to generate at least 20% equity before using refinancing as a tool. If you are not yet to that point, focusing on building equity can improve your refinancing approval and results, so pay attention to your loan-to-value ratio.
What about falling housing prices?
Even if property prices are falling, you can still refinance, as it comes down to the amount of equity you have in your property at the time of applying for the refinance. Sometimes it is a good case of ‘apply now’ whilst you know the situation of the market.
If the value of your property drops below your loan balance, then you typically won’t be able to refinance, which means that you will have to stick with your current loan until you pay off more of the loan debt or the property increases in value.
Can I get a mortgage where I pay less than I’m paying now?
Now is always a great time to shop around or check that you have the right loan for your needs. We’re a great starting point. It will depend on what interest rate you’re currently paying, what type of home loan you have (e.g. fixed, variable, interest only, line of credit), and what features you want in your loan. We can quickly explain your options.
Can I consolidate credit card or other debts into a home loan?
This is one of the reasons some people refinance. The advantage is that you pay a much lower interest rate on a mortgage than for most other forms of debt – e.g. credit cards, overdraft facilities, personal loans, etc. Providing you have sufficient equity in your property, you may be able to consolidate all your debt on a home loan. If you take this option though it is important to make sure you maintain your repayments of the debt that you consolidate at their current level, or you could easily end up paying more over a longer period of time.
How often do I make home loan repayments — weekly, fortnightly, or monthly?
Most lenders offer flexible repayment options to suit your pay cycle. If you aim for weekly or fortnightly repayments, instead of monthly, you will make more payments in a year, which could potentially shave dollars and time off your loan.
Good Refinancing Tips
- Make sure your new loan repayments get your loan paid off as quickly – or even faster – than the previous loan did. Also check that the associated costs are the same or less.
- If you have spare money, create an “all-in-one” loan that lets you apply all your spare money to repayments
- Know how much certainty you want in repayments and the impact on your finances when the market rates change. When you change from variable to fixed or vice-versa, there are costs when switching.
- Identify exactly what you want the extra cash for and be strict on repaying this amount off so that you pay off the larger loan in the minimum of extra time.
- Keep flexibility in your loan to suit your future needs, allowing you to make extra repayments and redraw later if you need to.
- Try to keep your refinance amount at less than 80 per cent of your property’s conservative value, to avoid paying the Lenders Mortgage Insurance.
Contact us and we’ll talk you through every step of the way, including what details you will need, documents and the process… and we’ll do all the running around for you!
Common questions for those thinking of refinancing
Can I get a mortgage where I pay less than I’m paying now?
Now is always a great time to shop around or check that you have the right loan for your needs. We’re a great starting point. It will depend on what interest rate you’re currently paying, what type of home loan you have (e.g. fixed, variable, interest only, line of credit), and what features you want in your loan. We can quickly explain your options.
Can I consolidate credit card or other debts into a home loan?
This is one of the reasons some people refinance. The advantage is that you pay a much lower interest rate on a mortgage than for most other forms of debt – e.g. credit cards, overdraft facilities, personal loans, etc. Providing you have sufficient equity in your property, you may be able to consolidate all your debt on a home loan. If you take this option though it is important to make sure you maintain your repayments of the debt that you consolidate at their current level, or you could easily end up paying more over a longer period of time. Speak with us today to discuss your personal needs.
How much money can I borrow?
We’re all unique when it comes to our finances and borrowing needs. Get an estimate on how much you may be able to borrow (subject to satisfying legal and lender requirements) with our clever loan options tool. Chat with us when you’re ready, we can help with calculations based on your circumstances.
How do I choose a loan that’s right for me?
Our guides to loan types and features (links) will help you learn about the main options available. There are hundreds of different home loans available so talk to us today.
How often do I make home loan repayments — weekly, fortnightly, or monthly?
Most lenders offer flexible repayment options to suit your pay cycle. If you aim for weekly or fortnightly repayments, instead of monthly, you will make more payments in a year, which could potentially shave dollars and time off your loan.
What fees/costs are involved in switching mortgages?
Depending on your loan, penalty fees could apply if you’re paying off your current mortgage early. But these may be offset by repayment savings when you switch home loans. We’ll walk you through any fees that could apply to your circumstances.
Need a home loan?
Whatever your circumstances, we will look for a loan that’s right for you, not the lender. Send through a quick enquiry and we will be in touch.
“The time is always right to do what is right”
Martin Luther King
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