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Should You Refinance Your Home Loan?
Universal Finance • September 30, 2024
Whether you’re looking to create more wiggle room in your budget or want to take advantage of different loan features, refinancing your home loan could be your best bet. For many Australians, refinancing your home loan can be a strategic move to secure a more competitive offer and save money in the long run.
However, if you've never gone through the process, it can seem daunting. This blog will provide insight into the benefits of refinancing, how it works and how a mortgage broker can assist you in finding the best refinance options.
What is refinancing?
Home loan refinancing involves replacing your existing home loan with a new one, usually with a lower interest rate and a different loan contract. Your new home loan then pays off the balance of your previous loan, with you making regular monthly payments on the new loan.
Here are some of the main reasons you may want to refinance your home loan:
- Lower interest rates — One of the top reasons to consider refinancing is the lower interest rates. Even a small reduction in the interest rate can lead to massive savings over the duration of the loan.
- Reduced monthly payments — By switching to a lower interest rate or extending the loan term, you’ll be able to reduce your monthly payments.
- Shorter loan term — Some homeowners refinance to shorten their loan term. For instance, moving from a 30-year loan to a 15-year loan can help you clear your debt faster and shave off your interest payments.
- Access to home equity — Refinancing can allow you to use your home's equity. This can be useful for funding home renovations, getting debt-free or covering other significant expenses.
- Switching loan types — You might want to switch from a variable-rate mortgage to a fixed-rate mortgage, depending on your budget and current market conditions.
- Your fixed-rate period is ending — If you initially took out a fixed-rate loan and the fixed rate is ending, you may want to consider refinancing your home loan. Once the fixed rate expires, your loan typically reverts to the lender’s standard variable rate, which can be higher and more costly than your original fixed rate.
How a mortgage broker can help you refinance your home loan
Before you can get started refinancing your home loan, understanding the process is important. Without third-party assistance, the process of refinancing your home loan would include the below steps, which we would facilitate and guide you through:
- Evaluate your financial situation — Assess your current financial status, including your credit score, income and existing mortgage details. It’s also a good idea to determine your refinancing goals, such as lowering your interest rate or accessing equity, so you have an understanding of what you’re looking for.
- Research and compare lenders — While it might be easier to refinance with your existing lender, they may not be able to provide the most competitive offer. Browse and compare offers from different lenders, considering interest rates, loan terms, fees and other conditions.
- Application — Submit an application with the chosen lender. You'll need to provide financial documentation, similar to when you first applied for your mortgage.
- Appraisal and underwriting — Usually, the lender will require a home appraisal to
determine the current value of your property. They will also review your financial information to ensure you meet their lending criteria.
- Loan approval — If approved, you'll sign the new loan agreement, and the lender will clear your existing mortgage. You'll then start making payments on the new loan.
The benefits of using a mortgage broker to refinance your home loan
Navigating the refinancing process can be complex, but a mortgage broker can simplify the journey and help you find the best options. Here's how a broker can add value and take the stress off your shoulders:
- Expert advice — A mortgage broker provides expert advice tailored to your financial profile and goals. They can also explain the pros and cons of refinancing and determine if it's the right move for you.
- Access to multiple lenders
— Brokers have access to a wide range of lenders and lending solutions, increasing your chances of finding a better deal than you might on your own.
- Comparison shopping — Brokers also do the legwork of comparing different refinancing offers, saving you time and effort in finding the right solution.
- Application assistance
— They offer guidance through the application process by helping you gather the necessary documentation and ensuring your application is complete and accurate.
- Interest rate negotiation — Brokers often have long, positive relationships with the lenders they partner with and can negotiate with lenders to secure competitive terms and conditions.
Make the switch to a more competitive home loan with Universal Finance Corporation
Refinancing your home loan can be a way for you to achieve better financial terms and save money, and having the right team by your side can make all the difference in your refinancing experience.
Universal Finance Corporation is a trusted mortgage broker with extensive experience helping homeowners refinance their loans. We do all the heavy lifting while providing expert guidance to help you find the best home loan refinancing options.
Contact us today to book a consultation and learn how we can assist you in achieving your refinancing goals.
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Whether you’ve been paying attention to the latest market movements or looking for ways to create more breathing room in your budget, you may be considering refinancing . Put simply, refinance home mortgage loans refers to replacing your current home loan with a more competitive offer. However, it's essential to understand both the advantages and potential drawbacks of refinancing before making a decision. That's why, in this blog, we’ll explore the benefits of refinancing, helping you determine if it's the right choice for you. Pros of home refinance loans 1. Possibly get a lower interest rate One of the main reasons homeowners opt for refinancing is to take advantage of the lower interest rates. Securing a lower rate can significantly reduce monthly mortgage payments and the total interest paid over the duration of the loan. With a more competitive interest rate working in your favour, you can look forward to the following financial benefits: Lower monthly payments — A lower interest rate can reduce your monthly mortgage payments, freeing up cash for other expenses. Long-term savings — Even a slight reduction in the interest rate can lead to substantial interest savings over the term of your loan, allowing you to use your income towards other financial goals. 2. Use the equity for cash The benefits of refinancing enable you to tap into the equity you’ve built in your home, turning it into cash that you can use for various purposes, including: Home improvements — Use the funds to renovate or upgrade your home, potentially increasing its value should you ever decide to sell. Projects such as kitchen remodels, bathroom makeovers or adding a deck can enhance your home's livability and market value. Debt consolidation — Pay off lingering, high-interest debts, such as credit cards or personal loans, through debt consolidation. This can simplify your finances, reduce the stress of paying off multiple debts and save you money on interest payments. Major purchases — With your newfound funding, you can finance significant expenses like education, medical bills or a new car without taking on additional debt. 3. Lock in your rate and feel more secure with your monthly repayments If you currently have a variable rate, refinancing to a fixed-rate loan can provide greater security and predictability in your monthly payments. Here are some of the most common benefits of switching to a fixed rate: Predictable payments — Fixed-rate loans offer consistent monthly payments, making it easier to budget, manage and plan your finances. Protection from potential rate increases — Locking in a fixed rate protects you from potential interest rate hikes, providing peace of mind and financial security. Cons of home refinance loans 1. Refinancing can be expensive Refinancing involves various costs and fees, which can add up and potentially offset the savings from a lower interest rate. This can include: Closing costs — These can include appraisal fees, origination fees, application fees and more, which can range from 2% to 5% of the loan amount. Break-even point — It’s crucial to calculate the break-even point, which is when the savings from the lower interest rate outweigh the refinancing costs. If you plan to move or sell your home before reaching this point, refinancing might not be worth it. 2. You may encounter lower-than-anticipated appraisals A lower-than-expected home appraisal can impact your ability to apply for a home refinance loan, particularly if you aim to cash out equity or secure a lower interest rate. Equity requirements — Lenders may want to see a specific amount of equity in your home to approve a refinance. A low appraisal can reduce your equity, making it harder to qualify. Higher interest rates — If the appraisal comes in lower than anticipated, you might end up with a higher interest rate or less competitive loan terms, which could negate the financial benefits of refinancing. 3. It may not be worth it In some cases, refinancing might not provide the financial benefits you’re hoping for, and it could even be not worth the effort. Here are a couple of things to be aware of: Minimal savings — If the interest rate reduction is minimal, the savings might not justify the refinancing costs. You need to carefully analyse whether the potential monthly savings are enough to make refinancing worthwhile. Extended loan term — Refinancing to a new 30-year loan can extend your repayment period, potentially increasing the total interest paid over the life of the loan. While your monthly payments might decrease, you could end up paying more in interest over time. Work with Universal Finance Corporation — Sydney’s most trusted mortgage brokerage firm If you’re thinking about refinancing your home loan, the team at Universal Finance Corporation can help you find the right solution. We partner with a wide pool of lenders, from major banks to non-bank lenders, to ensure you receive the best refinance rates for home loans for your circumstances. We’ll discuss your goals, borrowing capacity and other factors that make up your financial profile so we can make sure you’re matched with the most appropriate solution. Book a consultation today and discover how we can help you switch to a more competitive home loan.
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