What should you con­sider when switch­ing your home loan?

Whitsunday Times - - REAL ESTATE -

Have you been think­ing about ren­o­vat­ing your home? Per­haps you have been think­ing about up­grad­ing to a big­ger prop­erty, or us­ing the eq­uity in your home to buy an in­vest­ment prop­erty? Maybe you have been in the same home loan for a while and are won­der­ing whether there is a bet­ter, more com­pet­i­tively priced prod­uct on the mar­ket for your needs? What­ever your sit­u­a­tion, you may find that re­fi­nanc­ing can help you achieve your goals. By re­fi­nanc­ing, you may be able to se­cure a sharper rate and thus lower your reg­u­lar mort­gage re­pay­ments. In ad­di­tion, you may be able to con­sol­i­date some of your other debts into your mort­gage or un­lock eq­uity and fi­nally start those long-planned ren­o­va­tions. But while there are many perks as­so­ci­ated with re­fi­nanc­ing, there is also a lot to con­sider be­fore head­ing down this path, in­clud­ing:

Fees and charges

Some­times, even when you re­fi­nance into a sharper rate, you don’t end up sav­ing money. The sim­ple fact is re­fi­nanc­ing isn’t a free process. In fact, there is of­ten a raft of fees and charges as­so­ci­ated with re­fi­nanc­ing. As such, it is crit­i­cal you un­der­stand the costs and work out whether the charges out­weigh the fi­nan­cial ben­e­fits. When re­fi­nanc­ing, it’s im­por­tant to fac­tor in all pos­si­ble costs such as ap­pli­ca­tion fees, mort­gage regis­tra­tion fees, Lenders Mort­gage In­sur­ance and even break costs. Break costs are of­ten in­curred when you try to break out of a fixed rate term early. Your lo­cal bro­ker can help you un­der­stand what the var­i­ous fees and charges as­so­ci­ated with re­fi­nanc­ing will be so that you can de­cide whether this is the right path for you.

Lenders Mort­gage In­sur­ance (LMI)

De­pend­ing on what your loan to value ra­tio was when you took out your loan and how much of your loan you have paid down, you may be re­quired to pay LMI. As a gen­eral rule of thumb, if the amount you wish to bor­row is more than 80 per cent of the value of your prop­erty, you may have to pay LMI, which can be costly.

Loan type

If you do re­fi­nance, you will have to con­sider the type of loan and loan fa­cil­i­ties that you want. For ex­am­ple, do you want the se­cu­rity of a fixed rate mort­gage, or do you want the flex­i­bil­ity to make ad­di­tional re­pay­ments? How you an­swer these ques­tions will ul­ti­mately help you to de­ter­mine the type of loan prod­uct you want. You also need to ask your­self what loan fa­cil­i­ties you will need. Are you look­ing for a prod­uct with all the bells and whis­tles, or are you look­ing for a sim­pler prod­uct that maybe just comes with an off­set ac­count and re­draw fa­cil­ity? Your lo­cal bro­ker can talk you through your op­tions and see which prod­ucts and prod­uct fea­tures would best suit your needs and fu­ture goals.

Loan term

If you’re al­ready 10 years into a 30-year loan, you don’t want to re­fi­nance into an­other 30-year mort­gage. Don’t make the mis­take of sign­ing up to an­other 30 years just be­cause the in­ter­est rate on the new loan is smaller. When re­fi­nanc­ing, the key is to know what you want and do your re­search. The bet­ter in­formed you are, the more likely you will be to find a prod­uct that suits your fi­nan­cial sit­u­a­tion. Re­mem­ber, if you see a deal that sounds too good to be true, it prob­a­bly is!

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.