5 Rules for Refinancing your Home Loan

The real estate market is in an interesting phase at the moment. House prices are rising and interest rates are at a very low level. This means that many home owners with mortgages are thinking about refinancing their home loan to a new bank.152292-homes-in-suburbs

There are many reasons why people contemplate refinancing their home loan. Some do it to save money on their repayments, others to pay out existing debt while many want to access the equity in their homes so as to invest or renovate their existing house. All are valid reasons but if you are thinking about refinancing it is important that you follow the 5 rules.

1. Talk to your broker before doing anything.

This is critical. There is no point going through the time and expense of refinancing if for whatever reason it may not be feasible. The best thing to do before anything else is to talk to your broker. They will be able to tell you straight away if you qualify to refinance, if the reason you are doing so is acceptable to the new bank and whether you have the necessary documentation to apply for the loan.

2. Make sure that the money you save in the repayments for the new loan are sufficient to offset the hassle of applying for a new loan.

The next thing to have clear in your mind is that by refinancing you actually are saving money. Going through the process of refinancing can be daunting. To make the process worthwhile you should be aiming to save at least $100 per month in loan repayments by changing lenders. If your monthly saving is less than this it may not be worth going through the hassle of refinancing.
Also, the lender that you are changing to must be convinced that there is a financial benefit to you of making the change or they will not approve your loan application.

3. Check that you have taken into account the cost of the fees and charges involved in refinancing your home loan.

It is also important to work out the financial cost involved in refinancing your home loan. To leave your existing bank you will incur costs. These may include mortgage discharge fees, break fees and government fees and to go into a new loan you may also incur costs, such as loan application fees.
When you meet with your broker get them to identify the costs and charges of changing lenders. Once you know what these costs are it will be easy to work out if it is worth going through the process.

4. Make sure the new loan has all the features that you want.

Many people become so fixated on the savings they will make through refinancing that they forget to pay attention to what sort of new loan they will end up with. It is important to remember that if you are going to refinance ensure that your new loan has at least all the features of your previous loan and, if possible, get a new loan which has more and better features than your old one.

5. Ensure that if you are refinancing to pay out debt, that you actually pay out the credit card or car loan.

It is not uncommon for many people to go through the process of refinancing and then once they get the extra funds they do not pay out the existing debt and instead spend the money on something else.
If you are refinancing for the purpose of debt consolidation make sure you pay out the debt and if it is a credit card, close the account and cut up the card.


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