SWITCHING UP YOUR MORTGAGE: Things You Need To Know Before Refinancing.
Ryan Smuts
Director & Mortgage Adviser at Kris Pedersen Mortgages & Insurance and Director at Infinity Float Centre
Refinancing a home loan means replacing your current mortgage with a new one, typically to benefit from better terms or rates.
Homeowners might consider this option for several reasons. The most common is if your current lender isn’t coming to the party on a new interest rate so you look elsewhere to secure a lower one, which can potentially save thousands over the life of the loan.
Other reasons for refinancing include accessing home equity
However, it’s important to weigh the benefits against the costs, such as penalties for breaking your current mortgage or potential fees for setting up the new loan.
So before you make the switch and refinance to another lender, it’s important to evaluate your current mortgage to determine whether it’s still meeting your needs:
Interest Rate
Check if you’re still paying a competitive interest rate
Length of Loan Term
Is the length of your mortgage term appropriate for your financial situation, or would you benefit from extending or shortening the term? You need to be careful here, as when you refinance you could be going into a longer loan term than what you are currently on, which means you may end up paying more interest in the long run.
Repayment flexibility
Does your current mortgage allow for extra repayments, lump sum payments, or other flexible repayment options
Costs Associated with Switching Lenders & Refinancing.
This one can catch you out if you haven’t done your homework.
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While refinancing can lead to significant savings, it’s important to consider the associated costs
Early Repayment Fees?
Breaking a fixed-rate mortgage early, can result in early repayment fees (AKA break fees), or penalties which the Lender may charge in order to compensate for lost interest revenue.
Legal Fees
When you refinance your mortgage there will most likely be legal fees involved. You’ll need to work with a lawyer to handle the necessary documentation and registration, but there are a couple of banks that can handle this in house for you which will save you money. Again, have a chat with a Mortgage Adviser to see which option is going to be right for you.
Registered Valuation Fees
Some lenders may require a current registered valuation of your property, which can cost anywhere in the range of $500 to over $1000 depending on your property and its location.
Repayment of Incentives
If your original mortgage included incentives, such as a cashback, you may need to repay this if you refinance before the specified loyalty period ends. Even though you may get a cashback with your new lender, this will need to be factored into the calculations to make sure the move is worthwhile.
Working with a Mortgage Adviser to refinance your mortgage will open up the door to a wide range of loan products enabling you to secure the best terms for your needs.
We can quickly do the calculations for you to make sure a refinance is the best thing to do. As part of this service, we communicate with the bank on your behalf to get a quote for any potential break fees.?
If you would like some advice around your particular situation then please don't hesitate to get in touch with us.