31 Aug 101 Basics to Refinancing
After the Reserve Bank of Australia cut the official cash rate, some lenders follow the lead. When this happens, consumers are encouraged to consider refinancing.
You might want to refinance to lower your payment term or look for a more competitive interest rate. However, before considering all these reasons, don’t get intimidated with the terms. This article will explain what is refinancing exactly by answering the 5 Ws and 1 H questions—what, who, why, when, where and how to refinance.
What is refinancing?
Applying for a new loan to replace your existing loan is called refinancing. Consumers are often advised to consider refinancing in order to obtain a better interest rate and payment term. Instead of throwing out the original mortgage and creating a new one, the current loan is initially paid off to give way to the second loan.
Who can refinance?
For borrowers with good credit history, refinancing can be an efficient way to convert a variable loan rate to a fixed loan rate. However, if you have a bad credit, refinancing can also be an option. There are lenders who provide deals specifically for this. Anyone who has an existing loan (or even a bad credit for that matter) can actually refinance if they want to secure a better interest rate, access home equity and/or consolidate their debts.
The ultimate reason for refinancing is for you to take advantage of a better, more competitive interest rate or to secure a longer payment term. You can also refinance to access a home loan feature your current loan doesn’t provide.
Other reasons for choosing to refinance are:
-To facilitate home renovations
-To consolidate existing debts
-To get a better interest rate
-To purchase or build a new home
When you should refinance?
In most cases, although not required, it’s advisable to refinance with your current lender. You will be saved from all the hassle in preparing some required documents. However, if another lender is offering a more competitive rate which will help you save a lot, then the hassle will be worth it. You can trust your finance broker to do this for you. You can always check with your trusted finance broker the terms and restrictions your current lender has.
Where can you refinance?
This is where the advantage of getting yourself a finance broker come into play. Your finance broker has access to a lot of lenders. Considering their advertised rates and comparing these to your current rate, your finance broker can do the math for you. Or you can check it here with our Loan Comparison Calculator.
How to refinance?
If your current mortgage is not working for you, you can consider refinancing. Your finance broker will help you decide whether to stay in with your current lender or choose another, depending on your reason/s in switching loans. Once you have settled your loan, your finance broker will guide you throughout the whole process.
The danger in refinancing lies in the lack of knowledge. Without the right knowledge, it can actually hurt you to refinance. Although it’s a good thing to always take advantage of the low interest rate, consult your finance broker for a more comprehensive advice.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Lenders’ terms and conditions apply.