So, is refinancing a mortgage your goal this year? Or maybe you’ve already been thinking about it but are still intimidated by refinancing?
The trend of mortgage refinancing is gaining popularity in Australia. In response to increasing interest rates, homeowners refinancing with different lenders witnessed a 4.9% surge, reaching $14.6 billion in July 2023, as the Australian Bureau of Statistics reported.
If you are considering refinancing your mortgage this year, consult a refinance mortgage broker. They can help you choose the best home loan option and prevent you from facing various refinance myths. This blog will explain more about refinance myths and the role of refinance mortgage brokers in shedding light on these myths.
What is a mortgage broker?
Mortgage brokers are agents that facilitate transactions between lenders and borrowers. They can help you customise options that suit your financial situation, provide advice, and process loan applications on your behalf.
An effective mortgage broker will collaborate closely with you to understand your objectives, assess your eligibility for borrowing, and identify the specific needs for your home loan. They will prioritise your interests and connect you with potential offers that align with your requirements.
Debunking Five Common Refinancing Misconceptions
Refinancing your home loan is often accompanied by misconceptions that may hinder potential benefits. Let’s debunk five prevalent misconceptions surrounding refinancing.
Refinancing is too difficult
Transferring your home loan to another bank may seem complex and time-consuming, given the amount involved. It’s a task that might appear to require considerable effort and paperwork, especially when you have a busy daily routine.
The process is surprisingly straightforward, whether you’re choosing between refinancing due to ethical concerns with your current bank or seeking a better rate.
The key steps involve:
- Scheduling a meeting with a lender.
- Providing necessary documents and information.
- Signing the contract.
Understanding the typical timeline for refinancing, usually three to four weeks, allows you to trust that your broker is handling the process efficiently.
You need to change lenders or stay with your current one
Although your current lender may present appealing offers to retain you, exploring other options and comparing rates from various lenders is advisable.
When considering refinancing, it’s sensible to start with your existing lender. Compare the new loan products they offer with those in the wider market.
Mortgage brokers play a crucial role in this process. They can use their network of lenders to secure the most competitive interest rate tailored to your needs, potentially surpassing what your current lender can offer from their limited suite of products.
Loan restructuring is too expensive
Refinancing your home loan may not result in significant costs, especially since exit fees were abolished on July 1, 2011, for loans established after that date. While some lenders may charge fees for loan discharge and possibly legal fees, these typically cover title release and account closure.
The primary obstacle for homeowners considering restructuring the loan is often lenders’ mortgage insurance (LMI). If you initially borrowed more than 80% of the property’s value, mortgage insurance might have been added to your loan. Refinancing with a loan still exceeding 80% of the property’s value could result in additional mortgage insurance charges.
Some lenders offer free property suburb reports to assist in your research. Finding one with lower interest rates and minimal upfront may result in greater long-term savings despite potential fees for switching lenders.
The goal is to get low-interest rates
A common misunderstanding about refinancing is associating a low-interest rate with a better loan offer. While a low rate may spark interest, it shouldn’t be the only reason for switching loans. Low-rate loans often don’t include essential features like interest-saving inclusion or have a limited duration, typically ending on the lower end of ‘hot rates’ within six months.
Basic variable loans and low-advertised rates might suit those requiring minimal features, but they often lack beneficial options like extra repayments and offset accounts.
Having an existing home loan automatically qualifies me for refinance
Approval for your existing loan doesn’t guarantee refinance approval. Choosing a different lender requires going through the same application process, with the new lender assessing your current financial situation to ensure repayment affordability.
Sometimes, delays occur when your new lender sends a discharge request to your existing lender. Your current lender can take up to 14 days to reply with payout figures.
The role of a refinance mortgage broker
Mortgage brokers play a crucial role in guiding homeowners through their options. Assessing the homeowner’s financial situation and goals, these experts determine the most suitable refinancing option.
Beyond guidance, mortgage brokers excel in negotiating rates and terms with lenders, aiming to secure favourable terms for homeowners. Leveraging their expertise, they can secure lower interest rates, reduced closing costs, or improved loan terms, resulting in valuable savings for homeowners.
Their expertise proves especially beneficial in resolving potential challenges and obstacles that may arise during the refinancing process.
Conclusion
The growing trend of mortgage refinancing in Australia reflects the increasing awareness of homeowners looking to combat rising interest rates. However, many homeowners are still hesitant to refinance their mortgage. Hence, we debunked five myths in this blog post.
Refinancing is often perceived as complex, but in reality, the process is straightforward, typically taking three to four weeks and involving tasks like scheduling a meeting and signing a contract. Advisably, homeowners should explore options beyond their current lender to secure the most competitive interest rate, with mortgage brokers playing a crucial role in this comparison.
While concerns about the cost of refinancing exist, especially after the abolition of exit fees in 2011, potential long-term savings should be considered. It’s crucial not to focus solely on low-interest rates; comprehensive loan features and terms hold equal importance. Additionally, an existing home loan doesn’t automatically qualify for refinancing, as approval requires the same application process with the new lender.
Considering refinancing? Consult a refinance mortgage broker for personalised guidance. They can help you navigate the process, address misconceptions, and potentially secure better terms. Take the next step toward enhancing your financial well-being by seeking professional advice.
Sources:
https://www.bankaust.com.au/blog/what-is-refinancing
https://www.nerdwallet.com/au/home-loans/refinancing-home-loan
https://www.hsbc.com.au/home-loans/refinance/what-is-refinancing-a-home-loan/
https://www.bankaust.com.au/blog/unpacking-the-myths-about-refinance
https://www.yourmortgage.com.au/refinancing-home-loans/refinancing-myths-and-reality-checks
https://yhomeloans.com.au/four-refinancing-myths/
https://www.homeloans.com.au/en/news/5-refinancing-myths-busted
https://www.mortgagechoice.com.au/guides/taking-myths-home-loan-refinancing/
https://au.finance.yahoo.com/news/5-common-myths-refinancing-mortgage-180737841.html