Switch on the TV and you will notice that property markets and interest rates are usually front and centre of news bulletins and current affairs programs. Not surprising then that people spend a lot of time wondering about their mortgage. With banks competing harder than ever to attract and retain borrowers, more home owners are finding themselves in a position of strength when it comes to negotiating their home loan. But the decision to refinance shouldn’t come down to rate alone.
First, refinancing will cost you money. Your existing lender will charge a few hundred dollars on the way out, new lenders will charge a few hundred on the way in, and Land Registry Services (NSW) will charge similar to reflect the change on your certificate of title. You should budget to fork out at least $1,000 in the process, so although a saving of 0.20% sounds better in your pocket than your banks, you should calculate how long it would take to recoup your costs.
Second point is with regards to loan features. Do you currently need or use an offset account? What about making extra repayments and access to a redraw facility? Are there any costs when you use these features? Often times the cheapest home loan may attract fees to use certain features so you will need to weigh up these costs in your decision.
Another important consideration is to be careful selecting the right loan term. If you purchased your property 5 years ago with a 30 year loan term you will have 25 years remaining on the loan. Refinancing to another 30 year loan will reduce your repayments but you are effectively starting from scratch again and will incur tens of thousands of dollars in additional interest over the life of the loan. If maximising your cashflow is your main priority, this might work otherwise if you are interested in repaying your mortgage as quickly as possible you should look to keep your remaining term intact, or even reduce it if possible.
There are many times when refinancing your home loan just makes good economic sense. A good rule of thumb is to review your financial situation at least every two to three years. This will ensure that your loan remains competitive and you do not pay a “loyalty tax.” Failing to review your home loan regularly means you could be missing out on significant savings. A good broker or personal lender should be staying in touch and offering to review your situation every few years to ensure you remain in the right home loan. If you feel that you are being forgotten then perhaps it’s time to seek some expert home loan advice and get another opinion.
Tower Mortgage Broking are a professional Sydney based mortgage broker. For expert home loan advice on refinancing your home loan, contact us today.