A refinance can allow you to adjust your mortgage to your evolving financial and property goals. Let’s chat through your options:
What sort of refinance should I apply for?
cash-out refinance or mortgage ‘top-up’
A way to access the equity in your property, a cash-out refinance replaces your old mortgage with a new, larger mortgage and releases the difference to you in cash. This has the potential in increase your monthly repayments, however, refinancing to a lower rate may moderate the additional cost.
You will have to give the lender details around how this cash will be used in your application which could include property improvements, investment in property or shares, financing a car purchase etc. Keep in mind that this sort of refinance is not appropriate if you are making structural changes to your property, in which case you can look at a construction loan.
cash-in refinance
As the name suggests, a cash-in refinance involves contributing a cash lump sum to lower your new mortgage amount. Apart from the potential to lower your mortgage costs through a new, lower rate, paying down your principal means your monthly repayments will automatically be reduced. Similarly, your loan-to-value ratio will be reduced meaning you may qualify for further discounted rates from your lender.
rate-and-term refinance
Rate-and-term refinancing allows you the opportunity to make adjustments to your mortgage interest rate, term and features. It’s important to have a goal in mind. You might want to reduce your monthly repayments by finding a lower interest rate for your current loan amount and term. You may want to create certainty around your monthly outgoings, in which case you can look to fix the whole or part of your mortgages for a specified term to guarantee your repayment amount. Or you may want to expedite your mortgage by finding a lower rate and/or reducing your loan term to match your current repayments and pay down your loan sooner. Any combination of these is possible. Different solutions will suit different borrowers at different stages of their life and mortgage.
debt consolidation
Refinancing can allow you to consolidate other debts like personal loans, credit cards and car finance into a single balance, repayment and interest rate. In many scenarios, the interest rate on your mortgage will be lower than on your other debts, meaning your repayments on these debts could likely be reduced or the savings used to hose down the debt quicker.
It’s important to keep in mind that the interest on your additional debts will be spread over the term of your mortgage. To circumvent this significant interest cost in the long term consider funnelling any savings you make on a lower interest mortgage or refinance cash-back offers into paying down your mortgage. Additionally, continue to pay down your consolidated debts within their original term, albeit at a lower interest rate, to make the most of your interest savings by choosing a mortgage product that allows additional repayments.
It’s important to balance the pros of a refinance against anything that may disadvantage your personal or financial situation. If you decide to explore a refinance, make sure it is the right financial decision for you at this time. Your credit advisor can help you assess if it’s the right step for you. In the meantime, you can delve deeper here:
What seem like minuscule shifts in percentages between lenders can end up a large sum in the long run – how much can 0.5% save you?
Balance the costs from your outgoing and incoming lenders, as well as government charges, against the potential savings.
Speed up your application by ensuring you have personal and financial documentation available for your new lender to assess.
While lenders can offer appealing advertised rates, you cannot underrate the importance of the comparison rate.
Understand the current property market and its effect on the LVR of your property – it could earn you a discounted rate.
There can be a lot to be across when refinancing. A credit advisor is your best resource to help you will all of these steps.