Best Refinance Home Loan Tips
Potentially a refinance home loan strategy is a way to lower your home loan interest rate and monthly mortgage repayments. Or lock in a low fixed-rate home loan in order to stabilize the repayments for an extended period. Or get cash out to consolidate other debts or use for another purpose such as home renovations etc.
Refinance Home Loan, Whens The Right Time?
The refinance home loan process is much the same as what you would have experienced when you initially established your home loan.
Sometimes the question is, how do you know if and when you should do a mortgage refinance?
Following we’re going to review the most common reasons for a home loan refinance. From this information, you can start determining what’s right for you with the help of your best mortgage broker or loan officer.
One popular reason for refinancing is to do a low-interest loans comparison for the purposes of lowering mortgage repayments by searching for low-interest loans and refinancing to a better rate and/or extending the mortgage loan term.
Understanding Mortgage Exit Fees: For example, during the refinance process of going from say a 15 year or even a 20 year loan term and stretching it back out to a 30 year loan term, you will want to be aware of a couple of things when considering this option.
The first is, there will be some costs with the home loan refinance procedure just as there was when the mortgage was initially established. With this in mind it’s important to calculate your break even point. This is based on how long it takes for the amount saved from your new monthly repayment amount to equal the costs incurred with the mortgage refinance.
So, for example if you are planning on selling mortgaged property before the break even point is attained, then you’d probably not recover the costs of the home loan refinancing.
For example if your refinance costs totaled $1,000 and the mortgage refinance lowered the monthly repayment by $50 it will take you 20 months to break even on the refinancing costs.
Refinancing home loan costs: $1,000
Savings on monthly repayment: $50/month
Time to breakeven: 20 months
The above table is not entirely the full picture, because if you used the savings to further reduce the principal balance of your mortgage, then the breakeven point could be reached sooner.
Refinancing Home Loan Warning: Secondly, a home loan refinance to a longer mortgage term while usually making your mortgage repayment lower, will however mean paying more interest over the extended term of the loan. This happens because with the refinancing home loan process you have a brand new loan that starts over again the day the new loan settles.
This means if you were five years into a thirty year property mortgage and you choose to do a home loan refinancing into another thirty year mortgage, then the thirty year term will start over. Unless you deliberately choose to establish a shorter loan term (which you can do) when applying for the new loan during the home loan refinance process.
Some people do look to reduce the term of the mortgage, for instance reducing down from a thirty year mortgage term to a shorter term such as a fifteen or twenty year mortgage term. Basically this is the opposite of what we were just talking about.
The potential benefit of reducing the loan term is, even though your regular mortgage repayment may increase, you’ll be saving lots of interest over the remaining life of the mortgage subject to the interest rates of the day and the time left on your existing loan.
Nonetheless, it’s vitally important to note that if your refinancing purely to consolidate other debts like personal loans and credit card balances that you do so financially wisely. In other words don’t continue any uncontrolled spending habits after you’ve consolidated your loans otherwise you will just end up deeper in debt. Eventually the ever increasing debt could bury you financially and you could end up like those that seek cash loans for people on centrelink
Fixed Interest Rates Provide Security: Another potential feature of refinancing is to switch to a fixed rate home loan. Especially if interest rates are low, those who are in a variable interest rate mortgage may want to consider doing a home loan refinance to take advantage of low fixed interest rates. Changing to a fixed interest rate allows one to budget precisely how much to pay each month.
Nonetheless, when the refinance home loan process is undergone in any shape or form there will be some refinance and settlement costs and the loan term will start over again. Another consideration is to refinance to a split home loan, where a percentage is fixed and the remainder is a variable rate.
What Is Equity Good For? Last but not least, you can do a home loan refinance to get cash out using a portion of your home equity. This can be for varying reasons such as home improvements, pay off credit card balances, or any other worthwhile purpose including your children’s education, a new car or even a holiday.
Summary of Cash-Out Purposes Using a Refinance Home Loan Strategy:
• Home improvements
• Consolidation of other debt
• Children’s education
• New vehicle
A Cash out refinance allows access to the equity you may have built up or accrued in your property/s. This equity can now be used to do a home loan refinance to borrow extra over and above what you may already owe.
The question may be, how much can you access as cash-out? This can in most instances depend on which lender you’re with. Typically though most will allow borrowing capacity of up to 80% of the home value without any questions asked, including anything you may already owe.
There may also be other limitations on the amount of cash out any given lender will allow. Contact your best mortgage broker if you have any concerns in this area for possible alternatives.
Of course if you just need money for a short term fast cash loan, then you might want to try one of those payday lenders. Make sure you pay it back quickly though otherwise you’ll get stung.
Keep in mind though that when you do a cash-out home loan refinance request it doesn’t necessarily mean having to replace the existing mortgage with a new one. Many lenders will do what is called a loan ‘Top-Up’, which simply means increasing the limit on your existing mortgage.
You can then use the extra money for your chosen purpose. There will still be some costs involved in doing this and in most cases it is limited to a just top up fee, the amount of which can vary from lender to lender.
The term of the loan doesn’t need to change but be aware that the amount of your regular repayment will increase.
The Best Mortgage Brokers Do The Heavy Lifting: Talk to your best mortgage broker or bank loan officer to find out the consequences of what a cash out home loan refinance will mean to you. Or alternatively, if you should be investigating a home equity loan (line of credit) instead. The best mortgage brokers can also show you the many options available from a wide range of lenders and also keep you informed of the terms and conditions that may apply for the different lenders for cash-out refinancing.
When considering a home loan refinance remember to keep the following in mind.
Probably the most popular reason for refinancing would be, shopping for low interest loans in order to reduce the monthly repayment. Also, to save money by switching from variable rates to fixed interest rates, or cashing out a portion of the homes equity.
Summarising the refinance home loan features:
• Setting up lower monthly repayments by changing to a lower interest rate or extending the loan term
• Paying less interest over the life of the mortgage by shortening the loan term
• Switch from variable interest rates to fixed interest rates while home loan rates are low
• To access cash from a portion of the remaining home’s equity for any worthwhile purpose
• Investigate all fees and charges
• Research the long term consequences and solutions of a refinance home loan plan
Prior to undertaking the refinance home loan process, it is important to thoroughly research what is involved in the way of fees and other financial consequences that can occur with a home loan refinance.
Contact one of the best mortgage brokers in your area and they will be able to analyze your situation and give you a detailed report of what you can expect in the way of outcomes if you were to do a refinance home loan strategy.