Are you considering refinancing your house loan? Find out what aspects to consider and if refinancing is best for you.
Getting a cheaper interest rate on your house loan is arguably the essential incentive for refinancing. A difference in a few percentages might result in tens of thousands of dollars in overall repayments.
According to Digital Finance Analytics, over 30% of homeowners are now experiencing mortgage stress (with 30% or more of their take-home income going toward repayments). Yet, this figure might be lower if they had a lower interest rate.
To determine whether you can obtain a better bargain, compare interest rates. On the other hand, current interest rates aren't usually permanent, so you have to consider certain factors before you can refinance a mortgage in Sydney.
Factor #1: The Interest Rate Environment
The official cash rate, determined by the Reserve Bank of Australia, influences house loan interest rates. Still, one of the most important is the official cash rate (RBA). The cash rate moves in lockstep with home loan rates, so lenders will boost their rates if the cash rate rises and vice versa.
At the time of writing, the cash rate is at an all-time low and might fall considerably more. Low cash rates might be a good time to refinance, especially variable rates, which may fall much more.
On the other hand, lower cash rate settings are prone to future rises, and it may be aggravating to transfer to a new house loan because of its cheap interest rate only to have the rate climb shortly after.
Factor #2: The Value and Equity of Your Home
Building equity in your home might help you refinance since the equity can be used as a deposit. If you have less than 20% equity, you may be required to pay Lenders Mortgage Insurance (LMI), as you would with a deposit of less than 20%.
The difference between the value of your house and the amount owing on your loan is your equity. Your LVR (loan-to-value ratio) will be lower if the value of your home has increased since you initially bought it, indicating that you have more equity and hence more borrowing capacity.
Make sure you're current on refinance rates in Australia to forecast whether they'll rise or fall short.
Factor #3: The Costs of Refinancing
Refinancing isn't free; there may be application costs, appraisal fees, discharge fees, and other charges depending on the loan. If you have a fixed home loan with your current lender, you may pay a hefty penalty to get out of it. These can cost a few thousand dollars in some cases.
When refinancing, you must account for these charges. An excellent method is to use an online home loan calculator to compare how much you're paying now with the overall savings you'd earn on the new loan, fees included.
Factor #4: Your Credit Rating
Refinancing is a credit application; thus, it is subject to your credit score. If your credit score isn't stellar, it might work against you regarding refinancing. Refinance applications that are denied might hurt your credit score, so check out if you qualify for the loan first.
Conclusion
Refinancing a home is a thrilling experience! You're about to take a huge step, so you'll want to seek out the advice of a refinance mortgage broker in Sydney. With the help of a finance specialist, you can find the lowest rates and mortgage alternatives to help you pay off your loan sooner.
Wealthy You is an Australian mortgage company that provides you with a wide range of refinance mortgage in Sydney to match your financial demands. We make refinancing your house simple as an alternative finance specialist. Contact us today for more information!
