Today’s guest post by Lara Seers
Refinancing your home can be a great financial move in the right scenario. Unfortunately, too many Australians don’t understanding how refinancing works so they never find out how to use this option effectively. Don’t make this same mistake. Take one minute and read through this beginner’s guide to refinancing your home.
What Does Refinancing Mean?
Refinancing your home means swapping your current home loan for another one with different terms. It’s call refinancing because it changes the current financing of your property. Basically, the bank providing your new loan will pay off the original mortgage and set up a new one for you based on the changes you want. The ability to refinance gives you the change to change and update your loan terms when you see a good opportunity.
How Do I Refinance?
The refinancing process isn’t complicated. Contact your mortgage broker and lender and let them know that you are interested in refinancing your home loan. You aren’t limited to the bank currently handling your loan right now. While it’s often convenient to stick with the same company, you can refinance with whichever company you want. The lender will then walk you through the paperwork to set up a loan. You’ll likely need to pay for a valuation of your property’s market value to set up the new loan.
Most homeowners can refinance. Typically, you can’t refinance for at least a year or two into a new loan, but from there you have the option to. That’s not to say it always makes sense to refinance because there are fees involved, but most Australians at least have the options.
What are the Benefits of Refinancing?
Refinancing a home loan is often used as a way to save money on a loan by switching to a loan with a lower interest rate. This opportunity comes up when interest rates throughout Australia fall down or if you have improved your credit score since taking out the original loan. Either way means you have the chance to save on the interest cost of your home loan.
You can also refinance to change the length of your loan. This gives you a chance to pay off your loan earlier or switch to a longer mortgage with lower monthly payments. Finally, refinancing gives you a chance to cash out the equity in your property. If you’ve been making payments for several years, you own a portion of the home outright. The lender will send you a check for this value and add the cost back to your mortgage.
What are the Costs?
Refinancing isn’t free. You’ll need to pay several fees to get this process going. To refinance, you’ll need to pay for an appraisal of your house, an application fee to apply for a new loan, fees to set up the new loan, and possibly a fee for your credit check. These expenses can be significant and may outweigh the benefits of taking a refinance. Be sure to double check the numbers with the lender or your mortgage broker for the best home loans in NSW.
This was a blog post by Lara Seers. Lara is a real estate agent for properties in Queensland. She is a professional finance writer specialising in home financing across Australia.