What exactly is Refinancing?
Referred by some as ‘loan switching’, refinancing is basically a process of paying out your current home loan by taking out a new loan. This can be done with a new loan from your existing lender or through a different lender.
Refinancing is usually good for those individuals who you find their previous loan not feasible enough for their changed circumstances.
What can you refinance for?
- Renovation and home improvements
- Paying off all debts by rolling them into one loan
- Obtaining a cheaper rate
- To access cash for vehicle or appliance purchase
- To switch from a variable rate to a fixed rate role
Drawbacks of Refinancing
- At times, short-term costs exceed the long term savings
- Paying interest on the balance for a much longer period
Benefits of Refinancing
- Peace of mind with fixed monthly repayments
- Reduced interest rate and monthly payments
- Flexibility to pay off loan quicker
- Consolidation of debts (credit cards, personal loans and other debts)
- Unlocking the equity in your current property to finance your plans
Situations when Refinancing should not be considered
- If there is a costly exit fees applicable on your old loan
- If you don’t have a reasonable amount of home equity which is at least 20% of your property’s current market value (in this case you will have to pay Lender’s Mortgage Insurance)
- If your credit history has a few black marks of missed repayments or overdue bills
Additional costs associated
When you pay off your loan early, say in the first 3-5 years, then exit fees is applicable. It is either a percentage of the loan balance or a fixed amount.
During refinancing, the new lenders often charge a range of upfront fees which include:
- Loan application fee
- Valuation fee for a professional property valuer
- Settlement fee
Lenders Mortgage Insurance (LMI)
LMI is paid by the borrower to insure the lender of any risks that may be associated in case the borrower defaults in his repayments. If you are borrowing 80% or more of your property’s value, then LMI would be applicable to you. Also, LMI is a non-transferable payment, which means that if you refinance you’ll have to pay LMI again.
Stamp duty is the tax charged by the state government on your mortgage and is calculated against your loan amount. If refinancing increases the size of your home loan, you will have to pay stamp duty.
Mortgage Registration Fee
Mortgage registration fee is paid for registering your loan onto the property’s title record to the Land Titles Office or equivalent.
How ARG Finance can help
When refinancing your loan for any reason, it pays to do your homework. Our mortgage brokers will:
- Take an objective look at your individual situation, your goals and your current loan to give you an accurate picture of how much you can borrow and help pick the right loan for you.
- Clarify the costs and the benefits of refinancing and make you understand if it is going to be a profitable option in the long run. Also, you’ll be made acquainted with all the fees associated so that there are no surprises for you.
- Be with you at every step of the way and guide you through the application process whilst streamlining it for you.