How much is refinancing cost

Should I consider refinancing, and when?

We recommend that you monitor your home loan at all times and complete a full review at least every three years, preferably more often.

Accessing a better interest rate is the most common reason people look into changing their home loan. Interest rates are constantly shifting and with hundreds of loan options on the market it does pay to shop around.

Another common reason is debt consolidation. If you have several debts with different financial institutions (car loans, credit cards etc.), consolidating everything into one monthly repayment at a lower interest rate can save you both time and money.

If you plan to make a major investment, like renovating your home, or purchasing an investment property, then refinancing could free up the equity you need for your project.

If you find yourself struggling financially you may have the option to refinance your mortgage, which can significantly reduce your monthly commitment. This should, of course, be discussed with your mortgage broker in detail first.

There are many reasons why people look to refinance and if you’re not satisfied with your current lender there is no reason why you shouldn’t find a solution that suits you better.

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What is the refinancing process?

First you have to assess what you’re looking to achieve with your refinancing. Are you only looking for a lower interest rate? Or do you need to free up equity for a major renovation or for purchasing another property?

The right home loan for you will depend on your individual situation and the wisest thing to do is to contact a mortgage broker who can help guide you through the various lending options on the market and find out which one is most likely to meet your specific needs.

When you meet with a mortgage broker they ideally start by looking at your current situation in detail to find out factors such as: When was your home loan set up? How has your financial situation changed since then? Are your interest rates fixed or variable?

You would then move on to discuss what you’d like to achieve by refinancing. Are you looking to reduce your payments? Or free up funds for a renovation project?

When you know what you want to achieve, your mortgage broker will get you ready for the process, organising all necessary documentation and assessing the costs involved.

Once you’ve chosen a loan that you’d like to apply for, your mortgage broker will help you with all the documentation, speak to the lender on your behalf and manage the application from start to finish.

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How much will refinancing cost me?

It is important to know that there are costs involved in refinancing your home loan. However, the benefits almost always outweigh the costs as you can save thousands of dollars every year just by accessing a lower interest rate. As individual circumstances differ it’s important to know the costs involved for you.

A good start is to check whether there are any contract break fees for your current loan (this is fairly common for fixed-rate loans).  Once that’s done, you might want to proceed, together with your mortgage broker, to assess the following fees:

Application fees – These are the fees associated with applying for a new loan.

Discharge fee – An administrative fee your current lender may charge when you exit your present loan.

Valuation fee  – The fee that the new institution may charge to obtain an updated valuation of the property you are offering as security.

Land registration fees  – The fees attached to removing your existing mortgage from your current lender and register a new mortgage to your new lender.

Lenders mortgage insurance – This is an insurance that protects the lender in case you fail to meet your repayments. This insurance usually applies if you borrow more than 80% of your property’s value.

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What are the key terms around mortgage refinancing?

Here are some terms that you will probably come across when discussing refinancing your home loan:

Application fees: These are the fees associated with applying for a new loan.

Basis points: One basis point equals 0.01% interest. For example, 50 basis points equals 0.50%.

Comparison rate: A rate that includes both the interest rate and most fees and charges payable during the life of the loan. The rate is presented as a single percentage figure.

Credit limit: The maximum loan amount that a borrower can borrow under their home loan contract.

Credit report: A report showing the credit history of a borrower. This is prepared by an authorised credit reporting agency.

Discharge fee. An administrative fee your current lender may charge when you exit your loan.

Equity: The amount of an asset that is owned (e.g. the value of the property minus any outstanding loans).

Fixed interest rate: A fixed interest rate will stay the same for the entire fixed rate term, meaning your

loan repayments will be the same each month during the fixed term.

Honeymoon rate: A lower interest rate offered by banks and other lending institutions in the beginning of the loan. The honeymoon rate is only offered for a fixed time after which rates convert to a normal level.

Interest only loan: A loan that gives the borrower the opportunity to only pay off the interest portion of the loan for a specific time period.

Land registration fees : The fees attached to removing your existing mortgage from your current lender and register a new mortgage to your new lender.

Lenders mortgage insurance: This is an insurance that protects the lender in case you fail to meet your repayments. This insurance applies if you borrow more than 80% of your property’s value.

Loan to Value Ratio (LVR): The total amount of the loan shown as a percentage of the considered value of the property. For example, if a property is valued at $500,000 and the loan amount is $400,000 then the LVR is 80%.

Principle vs. interest: When you pay off a mortgage one part is interest and one part is principle. The principle is the amount you originally borrowed and paying this off means building equity in your property. The balance between principle and interest shift over time where you’ll pay more interest than principle in the first few years, a balance that shifts with time.

Security: The asset, e.g. a property, used to secure repayment of a loan.

Split loans: A loan can be split into different accounts where one can have a fixed interest rate and one a variable interest rate.

Term: The length of a loan, e.g. 30 years.

Valuation fee : The fee that the new institution may charge to obtain an updated valuation of the property you are offering as security.

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The savings behind a refinance – a case study

Tom and Julie recently refinanced their $550,000 mortgage and were able to access an interest rate 0.5% less than their existing loan. They now pay $170 less each month and will save over $61,000 in interest over the life of their loan.

Tom and Julie decided to keep paying the extra $170 towards their loan each month and as a result they can expect to reduce their loan term by 3.5 years, plus they save an additional $68,000 in interest over the life of their loan.

Fred and Sarah are looking to do the same as Tom and Julie, however their loan balance is $350,000. By switching to a rate 0.5% less than their current loan they can expect to pay $108 less each month and to save $39,000 in interest over the life of the loan.

Again, they decide to direct the $108 towards their loan each month meaning they can also knock 3.5 years off the life of their loan, and save an extra $43,600 in interest over the loan term.

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The refinance roadmap – a step by step guide to refinancing

DATA COLLECTION

We will discuss and ask questions around your current lending arrangements so that we have a thorough understanding of your current loans as well any associated costs if they were to be switched to another.

We will listen to what you like and dislike about your current loan and what your ideal outcome would be. Then, we gather information about your personal and financial position so that we can search for a loan product to better suit your needs.

We will also ask you to provide supporting documents and ID to verify the information provided.

We will use the information gathered in Step 1 to narrow down and compare suitable loans. We have your personal circumstances front of mind when comparing different lenders so that we only present appropriate options to you. We will discuss the findings with you in detail before making a formal recommendation.

LOAN RECOMMENDATION

We will provide you with a formal loan recommendation which will contain details of the loan product, why it’s being recommended and what costs are involved. We will discuss this in detail with you so that you understand the recommendation, have a chance to ask questions and can make an informed decision about our proposal.

APPLICATION & PAPERWORK

We will lodge the application and all required paperwork with the lender on your behalf, then follow the process right through to approval. We will keep you up to date throughout this process so you are informed of the progress of your application.

NEW LOAN DOCUMENTS

Once your loan is approved, your new lender will issue new loan contracts, which need to be signed and sent back. We will help explain these documents and walk you through the required forms.

Your new loan will be put in place and old loan paid out. We will assist you to check that your new banking arrangements are set up according to your wishes to help ensure a smooth transition.

Source: refinancingmyhomeloan.com.au

Category: Credit

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