Best Refinance Home Loan Tips
Most consider a refinance home loan strategy as 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.
Home Loan Refinance, When is the Right Time?
The home loan refinance 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 home loan refinance?
Following we’re going to review the most common reasons for refinancing. 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 to get a better rate and/or extending the mortgage loan term, which can lower the monthly repayments.
Mortgage Refinance Fees
Understanding Mortgage Refinance 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 Warning: Secondly, refinancing a home loan to a longer mortgage term will usually making your monthly mortgage repayment lower, however it will mean paying more interest over the extended term of the loan. The reason this happens because with the home loan refinancing is because you have a brand new 30 year loan term 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 with the refinancing process.
Some people do look to reduce the term of the mortgage, for instance reducing it down from a thirty year 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 refinancing to a shorter 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 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.
Fixed Interest Rates Benefits
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 refinancing their home loan 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 process is undergone in any shape or form there will be some discharge as well as Government registration fees 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.
Home Equity Loan Cash Out
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 Home Loan refinancing 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 a 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 mortgage broker if you have any concerns in this area for possible alternatives, they will be able to quickly give you the answers you need.
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. This will usually apply if you already have a low interest rate.
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.
Considering Refinancing? – Your Mortgage Broker Will Save You
Talk to your mortgage broker or bank loan officer to find out the consequences of what a cash out home loan refinance will mean to you. A mortgage broker 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 mortgage refinance keep the following in mind.
Probably the most popular reason for refinancing is, 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 refinancing 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 the best mortgage broker in your area and they will be able to analyze your refinance home loan strategy and give you a detailed report of what you can expect in the way of outcomes.
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