With interest rates hitting staggering lows and property prices soaring, many homeowners are probably thinking about refinancing – but is it worth it?
To help you decide I’m going to break it down for you in this tell all refinancing guide, which will explain the steps to make and what costs to weigh up when deciding to make the switch.
1. Get your property valued
Before you do anything, it’s important to have an idea of what your current property is worth, which you can find out by getting your local real estate agent to assess your home. However, keep in mind this will be an estimate, so for a more exact valuation you can pay a professional valuer. Once you know the value of your property, you can then determine what your loan to value ratio is, which will help you decide whether making the switch to a new provider is financially worth it.
If you do the maths and find your LVR is over 80% and too high because you haven’t paid down much of your home loan, you could be up for lenders mortgage insurance again if you decide to refinance. This cost is likely to outweigh any gains made by switching lenders, so with one quick check, the decision to refinance could be made for you.
2. Understand your current loan scenario
If you decide that you’re in a strong position to refinance, check what your current interest rate and home loan repayments are, as well as any annual costs you pay each year, if any, and the ‘settlement cost’ you would owe if you switched.
Mozo tip: This is especially important if you’re switching from a fixed rate mortgage as your ‘break costs’ could be substantial.
3. Calculate your potential savings
Once you know the details of your current loan, punch in the details into our Switch & Save Calculator, to see how much you could save by switching to a new provider. You can also make a shortlist of home loans that catch your eye and compare them side by side.
Let me give you a quick scenario of the savings that could be made: Say your current home loan is $500,000 with a 5.5% interest rate, by refinancing to our Mystery Bank Deal’s 3.99% variable interest rate over a 25 year period you would save $130,204 in interest. That’s more than enough to fund that outdoor living space you’ve always dreamed of!
4. Compare costs
Now you know what you could save on your monthly repayments, it’s time to weigh up whether the extra costs will be worth it. Talk to each of your shortlisted lenders to understand what the upfront costs are and any “legal processing fees” charged by the lender.
The lender is not obliged to include these in the comparison rate so it’s worthwhile checking. If you put your negotiating hat on some lenders will even waive these upfront fees to tempt you to make the switch. If haggling isn’t your thing, you can give me a buzz on 13 6696 (MOZO) or punch in your details into our online enquiry form and I’ll negotiate on your behalf. Also, do some research into what government costs you’ll be paying to have changes made on property deeds.
Mozo tip: Make sure your potential savings will outweigh your costs to refinance in the first 12 months.
5. Make the switch
When you’re happy with a new lender and are ready to make the switch, get all your paperwork ready to go. This includes pay slips, tax returns and the last 6 months of your on-time home loan repayments – without this it’s not even worth filling in your application. You may also need to provide proof of your credit card or personal loan payments if you are consolidating these into the loan.
6. Switch and settle
After your new home loan is approved, you’ll receive your new loan documents which include discharge papers. Once these are completed, the banks will take care of the actual switch and notify you of your settlement date. If you’re switching over other accounts, like a credit card or transaction account, make sure your direct debits, including your loan repayments, move over at the right time so you don’t miss any bill payments.
Mozo tip: Stay on top of your old lender to make sure the switch happens swiftly. Banks can be very slow to move your money so follow up and keep it moving.