When you consider the long-term financial well-being, it can be a great decision to refinance. There are multiple benefits of refinancing your home. You can fix up your rate of interest if it is variable, you can reduce the rate of interest, you can make your repayments easier by extending your loan term, or you can even go for a cash-out option with which you can fund a home improvement plan.
With our experience at APW Finance, we have guided several loan borrowers and continue to enable refinancing efficiently. Through this article, we share our knowledge related to the factors affecting loan refinances and what to consider before refinancing.
5 Important Things to Consider Before Refinancing
The Rate of Interest
Most people refinance their home loans to get a better interest rate. Although the rate of interest difference would be in a few percentage points, the overall difference when calculated comes up to thousands of dollars. So it is essential to compare the interest rate on the new deal before finalizing it. One thing to note is that the current interest rates are not permanent.
The Environment of Rate of Interest
The interest rate is affected by several things, but one of the main affecting factors is the official cash rate set by RBA – Reserve Bank of Australia. When the cash rate starts moving, the home loan rates also move. Lenders increase their rates when the cash rate increases and vice versa. Considering this, the best time to refinance is when the cash rate is low, as you will get the lowest interest rate. If you are in the variable rate regime, you can easily anticipate how high it would go. It is recommended that you keep track of the latest cash rate and interest rate through the news.
Property’s Equity and Value
Building the equity in your property is always helpful as the same equity can act as a deposit. The difference between the cost of the home and the amount you owe on a loan is equity. The loan to value ratio goes drastically down if the property’s value rises from the time you bought it, making it evident that you have high borrowing power as your equity is raised. Check with banking professionals to know your home equity and how much is required for refinancing.
Refinancing Costs
If you are thinking that refinancing the home loan is free, then you are wrong. It involves charges that need to be paid as and when required. The various factors affecting the refinancing costs are
- Valuation Fees
- Application Fees
- Discharge Fees
and many more…
You will also have to pay up a considerable amount of break fee if you have been on a fixed home loan. You will have to calculate all these costs while finalizing refinancing.
Credit Score
A credit score is a prime contender in the acceptance of refinancing. If you have a good credit score as per the banks’ requirement for refinancing, then the process would be smooth. But if your credit score is not that great, then you might not qualify for refinancing. If your refinancing application is rejected due to a bad credit score, then it will reflect very poorly on your financial reputation.
Now that we have explained refinancing in brief, this is the best time to make a decision. So are you ready to talk to our mortgage expert about refinancing? Contact us.
Experienced Director with a demonstrated history of working in the accounting industry. Skilled in Tax Preparation, Self Managed Superannuation Funds (SMSF), Accounting, Income Tax, and Tax. Strong professional with a Master of Applied Finance focused in Taxation from University of Western Sydney.