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5 Tips For Refinancing A Mortgage
With interest rates at record lows and mortgages coming up requiring to be renewed, individuals may not be sure what the best course of action should be. Professionals seem to be recommending fixed mortgages to lock in low interest rates over the next few year, however some lenders are offering cheap Standard Variable Rate loans which seem very tempting. Here are five tips for re mortgaging a property.
Please note, this is a generic personal finance piece applicable in different countries, and some information may not be relevant to Australia specifically.
1. Speak To The Bank First
Borrowers need to be aware of certain facts before they remortgage and the first person they should talk to is their lender. Borrowers should find out what the outstanding mortgage amount is and then ask whether there are any early repayment penalties for refinancing and whether there are any exit fees.
Borrowers should the find out what happens if they decide not to act. The mortgage may revert to the Standard Variable Rate (SVR), which may be low depending on whom the money is borrowed from, and if that is the case they should then ask what the monthly repayment would be.
Those who continue their mortgage with their current lender, opting for the SVR will not have to pay a new mortgage arrangement fee nor will they have to pay valuation and legal fees, which will be required should they refinance with a new mortgage.
The main issue with the SVR is its variability, which means that there is the potential for monthly interest payment to rise. For those who prefer the certainty of a fixed rate, they should ask what deals their current lender has on offer.
2. Compare The Different Options Available
Once the borrower is aware what the current lender is prepared to offer, they should then shop for different deals. Despite lenders scaling back their activities as a result of the global banking crisis, there are still plenty of deals out there, with many banks still willing to make loans.
The easiest way to compare home loan deals is through the money-au home loan comparison page.
Borrowers should be clear about what it is they want, whether they want a cheap SVR or the certainty that comes with a fixed rate mortgage. They should also work out whether they can afford to pay large upfront fees, and whether they want the ability to overpay or underpay their mortgage. Borrowers should also have an idea of the value of their property so that they can calculate their loan to value ratio.
3. Do The Math
Once an individual has isolated the deals they are interested in, they should calculate the total cost of the different deals over specific period of time. If the individual is interested in a three year fixed rate mortgage for example it is helpful to calculate the total cost over the three years.
In order to get an accurate picture, the individual should multiply their monthly mortgage repayment by 36 months, add any charges levied and then subtract any cash back that the lender may offer. The lowest rate does not automatically imply the lowest cost, and borrowers should take into account fees and charges.
4. Be Prepared For Rates Rising
Borrowers who opt for variable rate mortgages should be acutely aware that interest rates could rise, and though variable rate mortgages seem very attractive a few rounds of hefty official interest rate increases could make the cost of mortgage unaffordable.
If individuals know they cannot afford large increases in their monthly mortgage payments, they should seriously consider the certainty that comes with fixed rate mortgages.
5. Speak To A Broker
Mortgages can be quite complex, and if a borrower is having trouble understanding terms of a deal they should seek out a broker who have give them face to face advice. Mortgage brokers must be authorized by the regulator and have some qualification in order to be able to provide advice.
The credit crisis has resulted in mortgage brokers becoming more and more of a rare species and some lenders have decided to sell their mortgages directly rather than through brokers, which results in brokers not always being able to offer the best deals.
If the borrower has a history of bad credit, you are self-employed or wants a buy to let mortgage for example, a mortgage broker is still the best bet to get a deal.
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2 Responses to “5 Tips For Refinancing A Mortgage”
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In today’s mortgage market with the amount of different mortgage products and lenders offering these facilities, it is more imperative then ever to find and work with a qualified mortgage broker to help find you the perfect loan through the maze…Along with so personal homework and quality information as above..the chances of getting it right the first time is high…
There’s an excellent calculator hat can help do the maths to see if there is a benefit in refinancing http://www.numbersinaflash.com/refinancing-calculator/