So you are looking to refinance your current mortgage. There are a number of steps that the borrower needs to go through before deciding if mortgage refinance is a good idea. It may be that now is a great time to look for a new loan or alternatively, refinancing today may leave you with a far more expensive loan than your current facility.
Check you credit report
Before considering a mortgage refinance, it is important to establish what is showing on the borrower’s credit report. You may have had bad credit when you had originally purchased your property, however if this was some years ago, your report may have cleared up by now. Alternatively you could have had a clean credit history when the current loan was taken out, but now this is no longer the case.
Credit report now clear
If your original home loan is a bad credit mortgage but now your credit history is clear, you are placed very well for a refinance to a cheaper traditional mortgage. Providing your financials are in order and the property value has not dropped since your original purchase, you should be able to enjoy significant savings from a cheaper rate as a result of a refinance. Go for it!
Recently acquired bad credit
Where your home purchase was made at the time when your credit report was clear, but now there are some defaults or other credit issues, mortgage refinance may prove to be to expensive to be worthwhile. Just imagine if you are currently on a 5% mortgage but would like to refinance in order to either get some money out or consolidate some debts, and because of bad credit you may need to consider a mortgage at 6% or 7%. Such a scenario would require the borrower to analyse if the refinance will actually offer any savings.
Lenders and mortgage brokers are required by law, to advice a potential borrower, if the refinance is not financially viable (ie. more expensive than current facility).
Sometimes a slightly more expensive mortgage is still better than paying very high rates on your other unsecured debt.
Need to consolidate other debts
Are you trying to consolidate credit card or personal loan debt into your mortgage? This is when a small increase in a mortgage rate as a result of refinance may still generate savings in interest on other unsecured debts. Do take the time to calculate your current repayments between the mortgage and other debts and compare them to your potential repayments under the debt consolidation into the mortgage scenario.
Recently changes employment field or work status
One of the less known facts is that changing employment sectors or work status can affect your ability to qualify for mortgage refinance. This includes taking time off to have a baby, or moving from PAYG employment to self employment.
By going to your current lender and advising them that you want to refinance in order to get access to some cash because you have lost your job or have resigned with the view to starting a business, you are actually placing your current mortgage at risk. If current lender finds out that your financial stability is no longer there, and the income basis on which your mortgage was approved has now changed, they may decide to call in their loan.
It is best to discuss potential of a refinance with someone other than current lender first. You may find out that your current income will not even qualify you for the loan currently held.
Speak to a Mortgage Specialist
Mortgage refinance should be discussed with a broker or a mortgage specialist before lodging applications with lenders. Some problems can be ironed out before applying. A professional will highlight these so that you can make a decision as to the best way to proceed.