Refinancing your existing home loan can feel like confusing process and be a difficult decision to make. Depending on your reasons for refinancing, the final financial result can vary widely and you need to do your research and, preferably, seek specialist advice if you are unsure about anything.
People look to refinance their home mortgages for various reasons. They may be coming to the end of an interest-only loan term and wish to shop around for a competitive principal and interest loan deal. Your financial institution may no longer offer a competitive interest rate in the current market and it may benefit you long-term to switch. You may have improved your financial situation with a better job and you have improved your credit rating, so you can negotiate a better deal. Other reasons for refinancing your current mortgage may include:
- You are looking to fund a large expense like a home renovation, your child’s education or another property investment;
- You may want to consolidate other debts like personal loans or credit card debts into a new mortgage with one monthly repayment at the lower mortgage interest rate;
- You may want to switch to a fixed interest rate if you think interest rates have bottomed out or are close to doing so.
Sometimes, however, it may not make sense to refinance such as:
- If you have been paying your loan for 15+ years the benefits gained of a small interest rate reduction may be offset by adding years to the term;
- You need to consider the penalties for an early exit and administration fees from your current lender;
- If the balance of your loan is low you also may not benefit from switching providers;
- If you do not intend to stay at that property for the long-term.
Timing is everything, and in general, reviewing your home loan mortgage every three years is a good habit to get into. Circumstances can change with the economy, banking regulations and your own personal circumstances. So reviewing where things are at every few years may be a good thing for you to do.
The advantage of working with a reputable mortgage broker is that they understand the market, and will do a lot of the work for you to find a loan deal that best suits your needs in the current moment. They can offer you tailored options, as long as you provide accurate personal financial information about yourself. They may even be able to negotiate a better deal with your current lender on your behalf. This can sometimes work out best when you take into account the potential costs of refinancing versus the long-term benefits.
A broker can also assist your with your application – a process that can be challenging in itself. The information required might vary depending on whether you are refinancing with your current lender or with a new financial institution. You will have to provide detailed information on your current income and expense financial situation and to have your credit record assessed. Your property being refinanced will also have to be valued by the potential new lender. This process may take several weeks to complete.
Lastly, we recommend that you also seek advice from your tax accountant, particularly if you intend to refinance your property to fund an investment property.
Refinancing a property at the right time can reward you with great long-term savings, however the research and decision process can be challenging. This is where an experienced mortgage broker can help you. If you would like to chat about anything in this article, or if you’re thinking about refinancing your home mortgage, please give us a call on 1300 558 130.
“Doom and Gloom” is the usual consumer reaction to a market downturn and it’s easy to get caught up with this crowd mentality, fueled my media reports telling us how to think. Astute investors know, however, that you buy in the dips and not in the peaks of any market cycle, be it equities or property. Booms and busts do not last forever, so if you are a long-term investor this strategy makes sense.
The Australian Prudential Regulation Authority’s macro-prudential measures restricting lending to investors, and the banking royal commission has made banks more risk averse. With credit tightening, the property market has reacted as would be expected to the reduced number of buyers in the market and corrected itself downwards. This correction, of course, has not been uniform and the size of the correction can vary from state to state, from city to city, right down to a suburb/property-type level.
The underlying state of the Australian economy, however, is robust. This market is not being driven by a distressed economy of high unemployment and high interest rates. Australia has low interest rates that show little sign of moving any time in the near future, record low unemployment rates in the major cities of Sydney, Brisbane and Melbourne, and a growing population base in these cities. An ever-increasing population combined with less people buying their own homes equals more people in the rental market to live in investment properties. These factors combined with falling property prices has created a unique opportunity for savvy, long-term investors to invest in the property market.
Property investment experts are advising a strategy of wise and strategic long-term investment. No one knows how long price movement cycles will last, but one thing we do know is that they don’t last forever. Having a long-term approach to investing reduces this risk factor significantly.
In terms of investment strategy, the advice is to avoid the high-end prestige market, which generally suffers larger falls due to the limited number of buyers for such properties. The lower end of the market also should be avoided. These also tend to be areas where wage growth is stagnant and locations where infrastructure spending and development is lagging desperately behind population growth, making it risky to find reliable renters for your property and for the future value of your property.
So you want to look to buy in more established gentrifying suburbs, where the residents’ disposable income is rising, and where investment in infrastructure and local amenities is happening for the local residents. There will always be strong demand for good properties in these areas, with both rental returns and long-term capital growth.
If you would like to discuss anything in the article please drop us a line! With our team, you can be sure you’re always on top of the right deals available from lenders, and your mortgage is optimised to deliver on personal goals.