There are a number of reasons why refinancing can be beneficial for mortgage holders, but which strategy should you choose?
Consolidating debt is a common option for many mortgage holders as you are able to combine all debts and focus on one repayment instead of many repayment deadlines. This can not only save interest, but it can help make managing all of your debt much easier.
In order to really get ahead, once the loan settles the focus should be on fast tracking repayments to pay this extra debt off. Many borrowers often slip back into old habits and pay just the minimum repayment amount whilst building up a new credit card bill. So if you do consolidate your debt, speak to your lender about having the consolidated debt ‘split’ from your home loan. This way it will still be under the same interest rate, however it will also have its own statements and repayments, so you don’t forget the debt is still there. Cut up old cards and resist the temptation to take up more in the future.
There are several reasons why a borrower may wish to use the equity in their home. Some examples include: a deposit for another property, renovations or for other purchases. Different lenders will have different requirements when it comes to accessing your equity.
One of the main factors lenders will look at is the value of the property. Most lenders will allow you to increase your loan to 90% of the value of the property but anything above 80% will have mortgage insurance implications. The more equity you have the better your chances will be at acquiring extra funds. For example, if you have a loan of $150,000 for a property worth $450,000, you have a better chance of being successful than if you were to have a loan of $400,000 for the same property.
So, before you decide to refinance to access your equity, it is important you have a clear idea of how much your property is worth. This can be done by speaking to real estate agents to get an idea of what other properties in your area have sold for in the past few months. Doing your own research online to find recent sales in your suburb is also a good idea. You can also purchase reports on recent sales online, just ensure that you focus on sales in the last six months as these are going to be the most relevant in determining the value of your property. Try to be conservative and do your calculations on the worst case scenario to see how much equity you will be able to release.
Regularly comparing your home loan to other lenders is vital to ensure you are getting the best deal. If you think you could be getting a better deal, speak to both your lender and other lenders about your options. Make sure you speak with your lender first as they may offer you a discount or something similar in order to keep you. However, if they are not willing to fight to keep you, start shopping around.
From bad credit to prime loan
Borrowers often have to opt for a higher interest rate home loan if they have poor repayment history, a lot of debt or a bad credit history. As these are a higher risk for lenders, these loans often come with certain provisions such as higher interest rates or risk fees in order to protect the lender.
Over time your situation may have changed, so if you are now on top of your finances and defaults have dropped off your credit report, you may be able to refinance to a standard loan with your lender or another lender. This means you could save a substantial amount of money in interest and fees. Don’t just assume that you are stuck with this type of loan forever. Chat to different lenders and know when the time is going to be right and then act promptly.
There are a number of different reasons for refinancing your home loan, done for the right reasons, could help you save a significant amount on your home loan.