Are you considering refinancing your home loan? Before you jump ahead and pick any lender or product, think about what you want to get out of it.
Listed below are a few questions you should ask yourself before handing in an application.
What are your financial goals?
This will be a determining factor as to what type of loan will be most suitable for you. For example, if you are eager to pay off your home loan as soon as possible and want to put every extra dollar towards it, then you will want to find a loan that offers unlimited extra repayments and an offset account.
However, if you prefer to have a planned, consistent budget with the same repayment amount coming out of your account each month, then once again there will be different home loans that are more suitable.
Have your circumstances changed since you first took out your loan?
This will be a major factor when it comes to the lender assessing your refinance application. For example, if you have started a family and reduced your household income to one person since taking out your current loan, this may affect your borrowing power.
Also, if you have recently started a new job and are currently on probation, this may affect your chances of getting a home loan.
How do you rate the customer service of your current lender?
If you find that it is a constant battle trying to get in contact with your lender and they do not respond to your enquiries promptly, you may want to consider refinancing. You do not need to sacrifice good customer service for savings. There are lenders who can offer both; you just need to do your research and it could save you many years of stress and frustration.
Are you planning any home renovations over the next few years?
If you do want to conduct renovations on your home, you may be able to fund the project using your home loan by refinancing and taking out a higher amount. However, in order to be preapproved for a higher amount, the lender will need to be able to see if you can afford the larger repayments.
Are you currently locked into a fixed rate home loan?
If you currently have a fixed rate home loan, you will need to check with your lender about what break costs apply. Although you may be refinancing to a better home loan that will save you more money, this benefit could be outweighed by the extra break costs you will have to pay to leave your current lender.
What are the refinancing costs?
Don’t just assume that refinancing to a lender with a cheaper interest rate will automatically save you money. Refinancing also has other costs including application fees for the new home loan and closing fees for your current loan. Similar to the previous question, the costs could possibly outweigh the benefits if you don’t do your research and ensure you will be saving money.
Are you planning to take on more debt in the near future?
If you are planning to apply for more credit or make a big purchase (e.g. a car) in the near future, then you may want to consider putting it on hold until after you refinance.
When lenders look at your refinance application, they will assess your current financial situation. So, if you have too much debt and are unable to afford the repayments, you will not be approved. Even though you were approved for your current loan in the past, it does not necessarily mean you will be automatically approved for a new loan now, especially if your financial circumstances have changed.