As mortgage interest rates changes, many homeowners opt to refinance their loans. Refinancing means replacing an existing loan with a new loan and the goal is to lower the cost, repayments, consolidate debts or achieve another objective. Ideally, the new loan should have better features or terms to improve your finances and make the refinancing process worthwhile.
When can you refinance my home loan?
How soon you can refinance a mortgage is dependent on the type of home loan and your overall goals and objectives. Some mortgages will allow you to refinance immediately if they have no break or exit costs. Others require a specific length of time as break or exit costs may be prohibitive.
Even if you can refinance immediately, there are some factors to consider. For exaple, some mortgage lenders have pre-payment penalties that will kick in if you sell your home or refinance your loan a fixed rate period. Some lenders also require a waiting period, which can limit your options.
When should you refinance your home loan?
So, when is the right time to refinance? Consider refinancing if you can lower your interest rate or achiece a particular goal or objective. To determine if refinancing is worthwhile it makes sense to talk to a mortgage broker.
You must also consider your goals and objectives when looking at refinancing.
The question of "When can I refinance my home loan?" is not just about interest rates. You also have to consider if your credit is good enough to qualify for the right refinancing loan.
Ultimately your financial goals, the amount of equity you have in your home, the length of time you plan to stay in your home and the conditions of your overall financial situation are important factors when it comes to refinancing.
What do you need when you refinance your home?
Now, that we've answered the question, "When should you refinance your home loan?" it's time for you to prepare your requirements.
When you first applied for a home loan, you most likely provided your lender with your income details. Likewise, if you plan on refinancing your mortgage, you need to submit proof that you can commit to regular repayments.
These can be in the form of:
- Recent payslips that document your income
- Your most recent Tax Assessment Notice or PAYG Summary
If you're self-employed, the documents required of you will be slightly different. Your lender will typically request two years of Australian Taxation Office assessments and business/personal tax returns as proof of your income.
Again your independent mortgage broker can help.
What is the downside of refinancing your mortgage?
Of course, there are pros and cons to refinancing. Here are a couple of reasons why refinancing might not be the best option for some homeowners:
Refinancing isn't free
Your refinanced loan will come with costs, just like your original mortgage. Even if the results end in lower monthly payments, you won't be able to save money until the monthly savings offset the refinancing costs. If there's a chance you will move before you reach the break-even point, refinancing is not a good idea.
Some lenders may charge you extra for paying off your loans early. If you have a high prepayment penalty, you might want to stick with your original mortgage.
What to do when you refinance your home?
Once you've determined that you want to refinance, you're ready to shop for the best lenders and compare refinancing rates.
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