Refinancing is the act of acquiring a new loan to obtain funds and use it for other purposes. This new loan will pay for an existing one and allow borrowers to change the terms of their original loan for more favorable ones.
One common reason homeowners apply for one is to pay their current mortgage in advance. Through refinancing, there is a high chance that they would get a lower interest rate. Still, that depends on many factors, including economic status. Refinancing can be a good strategy, but only if it can substantially achieve the financial goals you want, such as lowering your monthly repayment.
To help you navigate the complex world of refinancing home mortgages, this article will tell you the pros and cons.
Why Consider Getting Refinancing: The Advantages
1. You Have a Chance of Getting Refinance Cashback
If you are lucky, you might get an offer of a refinance cashback from your lender. However, this offer does not apply to everyone. You need to pass the criteria before you qualify for it. Make sure that you review the setup well before you sign up for the agreement.
2. You Can Get a Lower Interest Rate
Before you commit to a refinance, check your lender’s current interest rate. A much lower interest rate could be one of the best reasons to refinance your mortgage. At least two per cent is the ideal rate reduction, but it is best to compute and assess in an annual perspective whether the offer is indeed better than your current.
3. You Can Access Other Loan Features
Refinancing can open up many features that you were not able to access in your original loan. One of the most desired features is the flexible repayment option, which can enable you to finish repaying your mortgage as soon as possible.
The Disadvantages of Getting Refinancing: Why You Should Be Careful
1. You Need to Pay Some Fees
If you decide to get your refinance from another lender, you need to pay off some fees in the process. The cost could be as high as thousands of dollars, depending on both lenders’ conditions.
2. Applying for Several Refinancing Could Negatively Affect Your Credit Score
Looking for options before settling can help you find the lowest interest rate. However, doing so could lower your credit score. Besides the inquiry, your credit score would also decline due to taking a new loan, especially since you have not yet proven your capacity for repaying it.
3. It Is the Start of Another Loan Term
Refinancing your mortgage is getting a new loan to cover the first one. That means that, even if you have been paying your loan for ten years already, and you received a new 30-year loan term, you would still need to finish the new 30 years you accepted.
How to Get a Refinance During the Pandemic
Should you wish to refinance your mortgage, make sure to check the lender’s policies first. Some of them offer a different loan type for victims of the pandemic. While the requirements are different among different lenders, here are some of the most common ones:
- A clear loan repayment history for at least six months
- Proof of your income stability at the moment (recent payslips, bank statements, or letter from the employer)
- Resume mortgage repayments
Whether refinancing could be bad or good for you depends on various factors, such as the number of years you plan to live in your house and the current interest rate. To know what a refinance could be like for you, it would be helpful if you do your research or seek help from financial experts.
If you decide on a home refinance in Sydney, contact us at Wealthy You. We have been serving the area for almost a decade and have been helping residents find the best mortgage for their needs in the simplest ways possible.