When is the right time to talk about my home loan?

Back in the day taking out a mortgage was like a marriage – till death do us part. But in a highly competitive home loan market, more and more Australians are breaking up with their loans by refinancing to a better deal.

When was the last time you reviewed your home loan? Five years ago? Ten years ago? Never? The loyalty towards one lender has vanished. Once upon a time when we stayed with one lender for the full 25-30 year loan term.

Australians are savvy shoppers and we are continually seeking a better deal and rate particularly during this current market conditions in 2020. The average Australian homeowner changes their loan every four to five years.

Refinancing your home loan can provide low-cost funds for a whole variety of purposes. Some of the main reasons include:

  1. To consolidate debt. If you have a car loan, small personal loan and/or owe money on your credit card, you can combine the debt into a new home loan.

  2. To reduce your repayments. Another lender may offer lower interest rates with fewer restrictions and fees.

  3. To fund a renovation or a once-in-a-lifetime holiday. To increase savings and cash flow, another lender may loan you more money. If you need to borrow more than 80% loan-to-value ratio (LVR), you may have to pay Lender's Mortgage Insurance (LMI) again even though you already paid if borrowed more than 80% LVR previously.

To stay or break up?

A little research goes a long way. So, before you speak to your current lender, do your homework – comparison sites can be a great place to start or speak to your local finance broker.

The finance broker can also show you how much you could save. And ASA Mortgage Brokers provide free no-obligation refinance assessment, you do not have anything to lose.

Once you have compared rates, pick up the phone and call your local finance broker. By discussing your plans at an early stage, you will have a much clearer idea about how much you can borrow by refinancing, and this gives you a firm spending budget for your project or how much you could save monthly.

Weigh it up

You know the saying; don’t judge a book by its cover. This also applies to home loan rates. A low rate may look appealing, but it could come with more restrictions and fees.

When refinancing, it is highly recommended to assess all aspects of the home loan and its costs involved. There are some fees you may need to take into consideration such as exit fees, settlement fees, legal fees, etc. However, if your current home loan is fixed, you may need to pay a break fee which can be a significant cost.

You could also be up for the lender’s mortgage insurance (LMI) again. This is when your loan is more than 80% of the current value of your home. To find out if you have sufficient equity in your home to avoid paying LMI twice.

And if you do not like hidden surprises, ask your lender for a refinancing fact sheet. If you go through your local finance broker, he/she may give you all that information upfront and it will be included in the Credit Quote Proposal Disclosure as well. Crunching the numbers now could save you thousands in the future and a broker will do this for you.

Get your ducks in a row

Taking an organised approach to your home loan refinance can speed up the process. Ideally, you should have all the paperwork on hand (déjà vu?). This includes proof of income – like a few months’ worths of payslips if you are on contract or casual basis employment – plus your home loan, credit card and personal loan statements that will give your lender a complete picture of your current finances.

Be prepared to spruce up your place a little too. Your bank may want to have your home valued as part of the loan refinance process. Presenting your property in its best possible light could be the factor that gets your loan request over the line.

When looking to refinance, consider your financial goals and priorities. If travel, starting a family, a new career or perhaps a big job promotion is on the cards, it is important your new loan matches your future lifestyle, too.

Chatting to a local finance broker can help you get the ball rolling and fall in love with a shiny, new home loan.

This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. The original content was quoted from ME Shared information resources portal (Dec 2020).

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