It is no secret that interest rates are low at the moment, which means refinancing to take advantage of these low-interest rates is definitely one of the best ways you can save money. It can be challenging to understand what exactly goes into refinancing your home and the financing terms. You need to be sure you know all there is to know about refinancing.
It Can Help Save You Money
One of the most common reasons homeowners choose to refinance their home is to get a more affordable deal from their existing lender or a different one. When it’s more affordable, it only means one thing: lower interest rates and minimal fees. However, it’s essential to remember that there will be instances when refinancing is the best option for you. So, you really need to think about it and explore your options before you take the plunge.
It Unlocks Your Home Equity
When you apply for a mortgage refinance, your lender will assess your Loan-To-Value Ratio (LVR). Lenders and banks will usually only allow refinancers to borrow up to 80% of the value of the property. So, what does your home’s equity have to do with it? Your home’s equity is the portion of the property you own.
For example, if you put a 20% deposit on a $600,000 property, then you need to borrow $480,000 from the lender. After a couple of years, you gained equity of $200,000 but still owe the lender $400,000. You can borrow the remaining percentage against the equity if you want to max out the 80% LVR requirement when you refinance.
It Comes at a Cost
Refinancing your mortgage comes at a cost, and with that, you need to think about things carefully. Whatever expenses you incur shouldn’t exceed the savings that you can get from switching your lender.
Refinancing comes with the following costs:
- Borrowing: You could be charged with upfront fees when you refinance with another lender.
- Break: Break costs apply when you refinance within your fixed-interest rate period.
- Lenders Mortgage Insurance: When you borrow more than your maximum LVR, you will be required to shoulder the insurance policy for your lender.
Other Things to Consider Before you Apply for Mortgage Refinance
- Credit rating: Your credit rating still plays a role when you choose to refinance your mortgage. Be mindful of having numerous mortgage refinances on your credit report as this can affect your bargaining powers.
- Current home loan interest rates: Before you apply for a mortgage refinance, you need to keep yourself up-to-date on the latest news on how interest rates are doing in the market and the various predictions by experts.
Ready to Refinance Your Mortgage?
Always keep in mind that there are fewer risks involved when refinancing, so it is worth taking the time to learn about it. If you are considering refinancing your home, make sure you keep these things in mind. Furthermore, consider working with an expert to help you through the process of mortgage refinance.
Get the best refinance rates in Australia here at Wealthy You. We are an Australian Mortgage Company in Sydney that offers various mortgage solutions to meet your specific financial needs. Get in touch with us now!