Everything You Need to Know About Refinancing
There are a few ways to borrow money, including refinancing. It is important to know exactly what refinancing is to determine whether or not it is the type of loan you need.
What Is Refinancing?
When you have an existing loan, you can take out a new mortgage to pay for the loan you already have.
There are a few reasons why refinancing makes sense, including:
- Your financial situation has changed.
- You have another loan that is approaching its deadline.
- Your home loan provider offers a great deal that you do not want to miss.
- You want to change your variable-rate loan to a fixed-rate loan.
You can take out a refinancing loan with the same lender but you can also go for another provider. Refinancing can even lead to potential tax benefits in Australia.
However, you need to refinance the loan to access the equity in your property. It is also required that you use the loan to invest in wealth-building products, such as properties or shares.
Is Refinancing For You?
As with any loan, you need to research the product first before applying for it. Compare it with other loans to discover what other options you have. Compared to your first mortgage, refinancing will typically be more straightforward.
Refinancing, when done correctly, can be a smart way for you to manage your finances. When you have the chance to secure a better deal, refinancing can be a good choice for your situation. It can also help you consolidate your debt. You can also use the borrowed money to gain equity in your existing property.
When you refinance your loan, your goal should be to decrease the loan –or at least keep it to the same amount. However, you can also use it to increase your loan, which can be utilised for consolidating more debts.
Keep in Mind
This technique also helps release capital for your future endeavours and expenditures. For example, you want to perform home renovations. In this case, property loan rates are lower compared to credit card rates. Therefore, you can consolidate your debts so you only have one loan. Repayments can become simpler and even allows you to reduce the amount you need to pay for the monthly interest.
On the other hand, decreasing the loan you owe can also lead to a reduction of the loan term. You will have less monthly repayments to make. It can also help in securing a lower interest rate over time.
The Dos And Don'ts of Refinancing
Before taking out a refinancing loan, you should take into account all the costs involved, including upfront and ongoing payments. These costs, such as the mortgage registration charges, loan establishment fees, settlement costs, and loan service charges, can affect your existing loan, as well as the new loan.
Since you have an existing loan, be sure to talk to your current lender first. You may even be offered a more competitive interest rate if you discuss your plans with the lender. It can also benefit you because it will save you time and effort in preparing the paperwork.
Spend some time to gather all the information needed, not just your credit report. Having all the necessary documents will ensure that you will have a smoother loan application that can lead to approval.
Meanwhile, the success of your refinancing application also depends on the things you should avoid doing, which include:
- While it is wise to compare one lender from the rest of your options, it is not recommended that you send out applications to each of them. Decide first before applying. This way, you do not hurt your credit score. When you apply, the lender will typically request a copy of your credit report as part of the application process. Although it is not a huge hit on your credit score, a few points can be crucial in getting the best deal out of your loan application.
- Have you ever encountered honeymoon rates? Lenders use honeymoon rates to lure potential clients to sign up for a refinance. This tactic involves an offer with a lower rate than others in the market. However, it is considered a trap because the rates will eventually revert to the real rate. Unfortunately, this rate is generally higher than the competitors.
- Signing right away is a common mistake. You should always find time to read the terms and conditions of the lender. If you can hire a lawyer or a mortgage broker, you can ask for their help. This way, you will understand any conditions involved.
It may not be wise to open new lines of credit or buy a new car. If you plan to refinance, you should be smart when it comes to the purchases you are making. It will help increase your chances of getting approved.
More Tips For Successful Refinancing
If you are thinking about refinancing, we recommend going through an experienced finance broker such as Quantum Finance Australia. With years of experience in the industry, we can assess your options and help you find the ideal solution for your individual needs.
Our company has access to lenders that are willing to look at your financial situation as a whole; not just a credit report that may be impacted by past financial indiscretions. Contact our friendly team, provide detailed information about your situation and future plans, and we will start the process.