Mortgage refinance can provide you with a multitude of benefits with a cheaper interest rate being only one of these. However when deciding to make the plunge you should be aware of all the risks, costs, and implications.
While often refinancing your mortgage makes perfect sense, sometimes all is not what it seems on the surface. If your current lender’s interest rate is higher than its competitors, for instance, or you need to access cash to finance renovations, investments or your child’s education, then refinancing is a great way to tap into your equity.
However, you need to enter the process fully aware of whats in store, as there are many factors that can influence the outcome of a refinancing application.
Before you get stuck in a legally binding contract to move your mortgage to another lender, make sure you carefully answer the following questions:
Has your income, asset and debt position changed?
If your income has changed for any reason since your previous application, you may not have the same borrowing power today as you did when you applied for your existing loan. Perhaps you are currently on maternity leave, have recently changed jobs or employment industries. Financial factors that can impact your borrowing power include: moving from full time to part-time or casual employment; starting a new business, so you’re now self-employed; increasing your personal debts, such as credit cards or car loans; and/or losing an income temporarily to have a baby.
Reasons for Mortgage Refinance
If your personal debts such as credit cards and personal loans have escalated, and you wish to refinance so you can consolidate them into your mortgage, make sure that you understand what you are saving. “People usually ‘bundle’ to reduce their monthly commitment, rather than to pay down the debt more quickly. Refinancing your debts into your mortgage will reduced your monthly repayment but will increase the period over which you will be repaying your mortgage.
Have you considered mortgage exit fees?
Lenders don’t want you to refinance your mortgage to another lender, and they can financially punish you for doing so. Make sure you check your loan contract carefully: early exit fees, pre-payment penalties and deferred establishment fees can equate to thousands of dollars, which can cancel out any benefits you’ll receive by refinancing.
Has your credit rating changed ?
If your credit history has changed due to outstanding debts or financial difficulties that you’ve experienced since you were approved for your current mortgage, you may have trouble refinancing your home loan to a bank or a traditional lender. Bad Credit Lenders invariably charge a little more in terms of rates and fees. It’s best to do a credit check prior to applying elsewhere; order a free copy of your credit profile at www.mycreditfile.com.au