Refinancing allows people to pay off their outstanding debt by taking out another loan, which can be great for a mortgage. It can be quite a helpful process, especially if you’re faced with lower interest rates and a fast-approaching deadline for the previous loan.
However, there have been a lot of misconceptions about mortgage refinancing and how the process works. This can deter many from applying or just really cause a lot of information. Keep reading to find out refinancing myths and whether they’re true or not.
Refinancing Is Easier Than Taking Out an Initial Mortgage
Many borrowers seem to have the notion that refinancing will have a smoother process than an initial mortgage. However, considering Australia’s current regulations, it usually depends on a number of factors now rather than being a general case for all applicants.
If you hope to have an easy time refinancing, try to look at whether your credit and home equity are adequate. Although credit was checked during your initial loan, equity is a different story and can affect whether your mortgage refinancing is accepted or not.
Refinancing Consistently Provides a Better Deal Than Mortgage
Aside from ease, borrowers also look to compare the mortgage refinancing process to the initial mortgage process and which got a better deal. It’s understandable as the whole point of refinancing is accessing better interest rates for your long-term budget plan.
However, that’s not always the case. Depending on who you work with, there could be additional costs for closing the refinance deal. Communicate with a financial advisor about what value you should engage in and whether you would ultimately save more within that deal.
Find Refinancing If You Already Have a Loan
Refinancing is usually done to cover the existing debt, so it would make sense that approval is easily achieved when you already have a loan in store, right? That’s not really how it works, as you merely fill in the qualifications.
A mortgage refinance isn’t achieved and approved just by having a loan. The terms of the loan and your home equity usually have to be evaluated for a borrower to close the deal. Most institutions will require at least 20% of the home’s total value to allow a refinance.
Refinance to Down Your Expenses
This isn’t untrue, though it can be a little more complex than that. The refinancing process allows borrowers to assess and tweak their loan. Terms can change, and even the type of mortgage loan can even be adjusted.
Understandably, most people use this feature to refinance for lower monthly costs to have more manageable payments. However, it’s also possible to refinance and increase those expenses in order to pay off the loan in a shorter time and lower interest rates.
Refinance From an ARM to a Fixed Rate
People with adjustable-rate mortgages or ARMs are normally advised to refinance and switch to a fixed-rate mortgage when they’re given the opportunity to. This isn’t applicable for people planning a short-term stay at home, though.
Refinancing into a fixed-rate mortgage would be great for families and individuals who are looking to settle down in a property. Those who don’t plan to commit should probably stick with an ARM and refinance to one with low interest rates.
Some rumours can be true. Though, it’s more important to be realistic and take everything into consideration. Working with a reputable financial institution and advisor can be crucial to transparency and achieving a suitable mortgage refinance that works for you.
In need of mortgage refinancing in Perth, WA? 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!