Ask yourself: Does my home loan rate start with a 4?
Might you be paying more than you should on your mortgage? Home ownership is a vital aspect of modern living. Everyone aspires to one day own their property and gain the security that comes with it. In pursuit of this dream, many people take out a home loan. The monthly repayment on it is most likely your single largest expense and finding ways to reduce that amount is necessary.
Refinancing your home loan is one way to cut down on the monthly expenditure or even secure a better deal. Many lenders have now warmed up to the idea of assisting people to move from one home loan to another and offer various options for it. And if your home loan rate starts with a 4, then you may be able to switch. So, should you consider switching?
While this isn’t an exhaustive list, here are some major reasons to help you make that decision.
When is it Logical to Consider Refinancing a Home Loan?
If Your Home Loan Rate Starts with 4
Interest rates have remained at a steady low rate so now is the time to take advantage. If you set up your loan years ago, there is a high chance you could be paying more than you need to. You could be using that extra money to pay off the loan quicker, so do a quick check to see how much you are paying in interest. There could be $1000’s that could be saved over the term of the loan.
If Your Home Has Increased in Value
One reason to consider taking out another home loan is if the value of your house has risen since you took out the last home loan. An increase in the value of your property might mean that you are eligible for a lower interest rate. This is because you may now be in a new loan-to-value band which makes lower interest rate charges possible.
If You Plan to Pay More to Clear the Loan
There are times you may find you have more disposable income due to several factors, e.g., you’ve received an inheritance, you have a new job that pays more, a pay rise, etc. That may lead you to desire to overpay on your loan so that you can clear it faster. However, not all lenders like or allow this. In fact, some may work towards preventing from doing so.
Refinancing your home loan can be a way to work around such an issue. Ensure that you find out about any potential exit fees or early repayment charges you would face in such a situation. If they do apply, compare them with your new, lower loan to ascertain what your cost savings would be and whether it makes refinancing worth it.
If You Desire to Switch to A Repayment Loan from An Interest-Only One
If you want to switch your home loan so that you are repaying the capital and not just the interest-only, your lender should be able to facilitate the change. For those who find themselves with an endowment mortgage that is performing less than expected, there is an option for you here. You can choose to alter part of it to capital repayment as you leave the rest to be an interest-only affair.
If you desire to move from the capital payment option to an interest-only one, prepare to deal with a reluctant lender.
If you’d like to get an updated quote on your borrowing, fill in the details on our “How much can I borrow” page and we’ll get you an accurate summary.
When is it Not Logical to Consider Refinancing a Home Loan?
If Your Loan is Small
If your loan is a minor one, then you may need to reconsider any plan to refinance it. The reason is that the smaller the loan, the greater the effect of the fees charged for the process. In some cases, there might be no savings at all, and some lenders won’t even accept refinancing requests for certain small loan amounts. Check with your bank to see if your loan qualifies, in such a scenario.
If There’s a Reduction in Your Home Value
There are times where you might experience evaporating equity. This is where the value of your house drops due to lower house values that affect your property. This can happen despite you making regular prior repayments. Such a situation makes refinancing non-viable.
Instead, you will have to keep making your repayments as you wait for home values to go up again in your area. Whenever you can ensure you make overpayments to assist, you pay down your loan.
If Your Credit Rating Has Gone Down Since Your Last Home Loan
If for whatever reason your credit score has taken a hit between now and when you last took out the loan on your house, it is advisable not to refinance it. In assessing whether to give you the money, many lenders try to figure out whether you would still afford the loan should interest rates go up. A poor credit rating works against you when it comes to such a scenario as you will be considered a high-risk client.
Why You Should Choose a Mortgage Broker if You opt to Remortgage Your Home
When you procure a remortgaging deal from a broker, they negotiate with several lenders to find the best rates for you. Here are some benefits to doing this.
Working with a broker is convenient because they do all the work on your behalf. From sourcing and negotiating with banks to securing approval, it is all part of their duty. You can, therefore, procure a second home loan without disrupting your daily schedule too much.
Relationships with Lenders
Brokers have extensive relationships with banks which makes them get terms that you wouldn’t be able to access. They can even leverage these relationships to get you waivers on the loan fees. Due to these professional relationships, they can get you some one-on-one attention with banks that you would not be able to receive if you dealt directly with them.
A broker provides a service that is most suitable for you and works closely with you during the entire process until you close on the home loan. They are readily available, provide advice when necessary and help prepare the way for you as the process goes on.
Helps You Save Money
A broker can get you some of the best rates. The reason they can manage to do this is that they receive the loans on a wholesale basis from the lender. You can, therefore, cut down on your total loan costs by identifying a reputable broker with attractive rates.
It is now easier than ever to switch home loans. There are several options that lenders provide to assist your broker to refinance your house so why not take advantage? You are literally throwing money away by not getting a broker to look into the options of switching and saving money. Wouldn’t you want to have your house paid off sooner rather than later? Imagine what you could do with the extra money you save?
Let Jane take a look at your current situation and see if switching is right for you. It’s a call that has the potential of saving you a lot of money.