When low mortgage interest rates are making headlines in Australia, many homeowners are considering whether or not to refinance their mortgages. However, the decision to refinance your mortgage should not be based on this week’s interest rates alone. Here are five things to keep in mind when making refinancing decisions.
1. The Interest Rates
Before you refinance, you need to make sure that the interest rate for your new mortgage is lower than the rate for your current mortgage. It is important to note that the interest rate is a significant factor to consider, but it is not the only thing that you should be looking at. Even if the new interest rate is lower than the rate for your current mortgage, you should not automatically refinance your loan.
Mortgage interest rates are cyclical and will rise again in the future. As such, you need to study past rates.
So you need to figure out what the interest rate will be in the future. If it is likely to rise, then you should consider the impact of refinancing on your finances. Making this mistake can cost you a lot of money.
2. The Interest Rate Environment
The official cash rate, determined by the Reserve Bank of Australia, is one of the most important variables influencing home loan interest rates (RBA). Home loan rates tend to change in tandem with the cash rate; as the cash rate rises, lenders boost their own rates, and vice versa.
Low cash rate situations might be an excellent time to refinance, especially to variable rates, since they may fall much more. On the other hand, lower cash rate conditions always have the possibility for future rises, and it can be disheartening to switch to a new house loan for its cheap interest rate only to have the rate rise shortly after.
Keep up with the latest news on house loan rates to predict if they will climb or reduce shortly.
3. Your Property’s Value and Equity
When you refinance, you will have to pay fees and charges to the lender and the mortgage broker. Usually, these fees and charges are a percentage of the property value, and you have to pay them before getting another loan for the new property.
These fees can vary between 2-5 per cent based on the property’s value within the first year. Keep in mind that what you’re about to pay is a small amount compared to the total costs of your mortgage.
4. The Costs of Refinancing
Refinancing a home loan is a complex process, which often involves the services of a mortgage broker. Fees vary according to the property’s value, the term of the loan and the size of the outstanding loan. This means that the costs of refinancing are not entirely predictable.
While you can’t control the costs of refinancing your mortgage, you can try to estimate how much it will cost you. Remember that you should only look at the fees and charges you will have to pay for refinancing. The other fees for refinancing should be excluded from your estimate.
5. Your Credit Rating
Refinancing a home loan requires a change in your financial status, and subsequently, your credit rating will be affected. However, there’s no guarantee that your credit rating will suffer. Its condition will depend on the payment behaviour of your previous loans.
Remember that refinancing a home loan is an expensive process, so you should do it only when you have enough funds to cover all the costs of the new home loan.
Conclusion
When considering whether or not to refinance your home loan, it’s important to understand all your options. By determining your true financial position and weighing the pros and cons, you are well on your way to making sound financial decisions about your money.
If you’re looking for mortgage lenders in Perth that can assist you in refinancing your home mortgage, don’t hesitate to contact FinanceCorp. We are mortgage professionals committed to ensuring that you thoroughly understand the lending options available to you.
All of the Finance Managers at FinanceCorp are fully qualified, trained and experienced mortgage professionals who live and breathe finance. Give us a call today to get started!