When there’s talk of interest rate rises, home owners tend to get twitchy. They think … ‘Oh, I wonder if it’s time to switch… If I can get a better deal or lock in an interest rate before they go higher’. And those are all good questions that you should be asking.
Switching home loans could help pay down your mortgage sooner, providing you are refinancing for the right reasons and understand exactly what’s involved.
Know the costs
Paying 0.5 per cent less per annum on a $250,000 principal-and-interest mortgage could save you around $23,000 over the life of a 25-year loan. That’s a sizeable chunk of change back in your pocket over the long term, but there are usually up-front costs associated with switching loans, especially if it means that you’re moving to a new lender.
It’s important to know the costs of exiting your current loan before switching and you should also factor in any set-up costs for your new loan, which can be several hundred dollars, plus ongoing account fees.
Only once you have factored in all of the associated costs will you be able to assess whether it benefits you financially to refinance, and that’s where a broker can help you make the right decision.
Compare products and service
A lower interest rate is a great reason to switch but it shouldn’t be the only deciding factor.
Every loan is different so figure out what’s important to you. A broker can help you match it with the right product and the right lender.
Check your borrowing power
One of the biggest oversights borrowers can make when refinancing is their current financial situation. Has it changed since you took out your original loan? If the answer is yes, you may find your borrowing power has expanded, or possibly shrunk. The latter could limit your refinancing options.
You may have started a family and no longer have two full-time incomes; switched careers and now earn less; started your own business, and have a less regular income stream; accumulated other debt, such as credit cards or car finance; or eroded your credit rating through late payments. Any of these factors can impact your borrowing credentials, and may give you fewer bargaining chips than when you took out your original loan.
Do a thorough assessment of your total income, expenses, outstanding debts and credit rating so you understand your true financial position before shopping around.
Switch to save
A lot of people refinance to consolidate debts, bundling credit card balances, personal loans or car payments into their mortgage, which usually carries a much lower interest rate than other types of finance and credit and this can be a hugely beneficial financial strategy because it will lower minimum payments on your debts overall, which can help with cash flow … but it doesn’t always guarantee that you are saving on your home loan.
The best strategy is to pay more than you need to when interest rates a low – this way you’re getting to your end goal faster. And make sure you get your finances under control – this might mean cancelling credit cards if you tend to be a spender because they can rack up enormously expensive debt very quickly.
Direct your debits
Switching to a new loan requires a bit of organisation too. Make sure you also switch any direct payments out of your account as well as those that come into your account, such as wages or rental payments or share dividends.
Talk to your broker
Take the time and stress out of shopping for a new loan by letting a mortgage broker handle it for you. We have access to multiple lenders with multiple products, allowing us to cast a wider net than you probably can on your own to find a home loan deal that suits your needs and circumstances. Brokers can also often gain access to lenders who are happy to take on self-employed borrowers, or those who don’t advertise heavily to consumers, but still offer competitive home loans. The benefits of having us onside are numerous; and quite simply, that’s the reason that now more than 52 per cent of Australian borrowers use a mortgage broker to arrange their finance.
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