Are You Considering Refinancing Your Mortgage?

Is your home loan not up to scratch? Are you looking for a better rate? Do you want to unlock equity? Then refinancing could be for you, but there are some important questions to ask first.

If you are considering refinancing your mortgage, you are not alone. With the rising cost of living and interest rates hitting the hip pockets of many Australians, it is a popular move. According to ABS data, November 2022 saw refinancing values reach a record high of $13.4 billion.

Refinancing may offer you opportunities to unlock equity, land a better rate and avoid what is known as “loyalty tax.” Sticking to the same loan could see you missing out on favourable rates and features that lenders like to use to use to gain new customers. Or maybe you are about to come off a fixed loan period and are bracing for a potential rate hike.

Whatever the reasons for refinancing, we have some questions you help you through the process.

What Is Your Financial Picture?

Banks want to look at your financial profile before lending you money, so check that your credit score is healthy to avoid disappointment.

Look at your budget to see how much you can afford to pay towards a mortgage. Include interest, repayments, and service fees, and factor in possible additional refinancing costs such as application and valuation fees. You can also consider how the length of your loan impacts you budget.

A longer-term loan usually comes with lower repayments but more interest over the lifetime of your loan. A shorter-term loan on the other hand would usually mean you make higher repayments now, but you could save on total interest payments.

Whichever way are you are leaning, we can help you crunch the numbers.

Do You Have Equity?

Having 20% equity in your home is typically a lender requirement when refinancing. But what is equity?

It is the difference between the market value of your property and the balance of your mortgage. With the recent decline in property values, it is an important thing to check.

The 20% equity typically acts as a deposit. Not having 20% may mean you have to pay lenders’ mortgage insurance, which may make refinancing not worth it. And negative equity, when your mortgage balance exceeds your property’s value, would most likely put the brakes on any refinancing plans. But if you have additional equity, you may be able to unlock it when refinancing.

Here is an example. Say your house is now worth $1 million, but you bought it for $800,000 a few years back with a $600,000 loan that you have paid down to $500,000. Banks will typically allow a loan for 80% of a property’s market value (depending on your financial position and other factors). So, if you refinanced your $500,000 loan to an $800,000 loan, you could unlock $300,000 for things like renovation projects or investments. 

What Are You Looking For?

Now it is time to think about what you want from a loan.

A better interest rate is usually at the top of the list, but what other features could benefit you? An offset account may be something you want to reduce interest, or the ability to make additional repayments without incurring penalties.

Depending on what you are after, you may not need to move to another lender. We can always talk to your current lender first to see if they will offer something better. If not, then we can explore other options.

Get in touch

Do you want to refinance to unlock a better interest rate, features and benefits or equity in your home? Then give us a call. We can help assess your situation to see what is possible and locate loans and lenders that would be a great fit for you.

Phone: 1300 855 022

Email: clientservices@zippyfinancial.com.au